Unlock the secrets to knowing when to refinance

When does refinancing actually make sense?

Refinancing makes sense when the benefit you'll gain outweighs the cost of switching, and that calculation depends on more than just finding a lower interest rate.

Consider a borrower with $450,000 remaining on their mortgage, paying 6.5 per cent on a variable rate. A broker runs the numbers and finds a lender offering 6 per cent. The saving sounds appealing until you factor in discharge fees from the current lender, application fees with the new one, and potential valuation costs. If those total $1,200 and the monthly saving is $120, the break-even point sits at ten months. After that, the saving is real. But if the same borrower plans to sell within a year, the cost eats most of the gain.

We regularly see people refinance because a headline rate caught their eye, without checking whether their current loan already offers the features they need or whether their situation has changed enough to justify the shift. A loan health check gives you a clear picture of where you stand before you commit to the process.

The decision to move loans should start with your circumstances, not with a rate comparison table. If your income has dropped, your expenses have climbed, or your loan no longer fits the way you use your mortgage, those are stronger signals than a quarter-point difference in rate.

Your fixed rate period is ending

Most borrowers who fixed during the low-rate window between late 2020 and mid-2022 are now coming off those terms and reverting to their lender's standard variable rate, which can sit well above what new borrowers are offered.

Lenders often price their back book higher than their front book. That means if you do nothing when your fixed rate expiry arrives, you may end up on a rate that's significantly higher than what the same lender advertises to new customers. In our experience, the gap can be half a percentage point or more, depending on the lender and the loan size.

This is one of the clearest moments to act. You're not breaking a fixed term, so there's no break cost. You're simply choosing whether to accept the revert rate your lender offers or move to a loan that matches your current needs. Some lenders will negotiate if you call and ask, but many won't move far enough to match what's available elsewhere.

If your fixed period ends in the next 90 days, start the conversation now. Most refinance applications take four to six weeks to settle, and you want the new loan in place before the reversion kicks in.

You're stuck on a high rate and want to access a lower one

Some borrowers took out loans when rates were higher, or their lender has simply stopped competing on price. If your current rate sits above what's available in the market and your loan amount is large enough to make the saving meaningful, switching can deliver real cashflow relief.

A borrower with $380,000 owing at 6.5 per cent pays roughly $2,470 a month in principal and interest over a 25-year term. If they move to 5.9 per cent, that repayment drops to around $2,330, a saving of $140 a month or $1,680 a year. Over five years, that's more than $8,000, assuming rates stay flat. The refinance process might cost $1,500 in fees and time, leaving a net gain of around $6,500 before any rate movement.

The larger your loan amount and the bigger the rate gap, the more the numbers tilt in favour of moving. But if your remaining balance is under $200,000 and the rate difference is small, the saving might not cover the effort.

Interest rates matter, but so do loan features. A slightly higher rate with a full offset account can outperform a lower rate without one, depending on how much you keep in offset. Run the numbers based on your actual behaviour, not on the assumption that you'll maximise every feature.

You want to release equity for an investment or renovation

As property values rise, the equity in your home increases. Refinancing lets you access that equity without selling, either to fund an investment property purchase, renovate your existing home, or consolidate other debt.

Lenders generally allow you to borrow up to 80 per cent of your property's current value without paying lender's mortgage insurance. If your home is now worth more than it was when you bought, and your loan balance has reduced, the gap between what you owe and what you can borrow widens. That gap is your usable equity.

In a scenario like this, a borrower owns a property valued at $700,000 with $300,000 owing. At 80 per cent, they can borrow up to $560,000, leaving $260,000 in accessible equity. If they want to use $100,000 as a deposit on an investment property, refinancing lets them increase the loan to $400,000 and release the funds at settlement.

The key question is serviceability. Releasing equity increases your loan amount and your repayments, and the lender will assess whether your income supports the larger debt. If you're also buying an investment property, the rental income can help, but lenders typically shade that income by 20 per cent to account for vacancy and expenses.

This type of refinance takes longer because the lender will order a new valuation and assess your capacity based on the increased borrowing. Start early, and make sure your broker has a clear picture of what you're using the funds for, because some lenders have different policies depending on the purpose.

Your loan no longer matches how you use it

Mortgages aren't static. The loan that worked when you bought may not suit the way you manage money now. If you're keeping a buffer in a savings account instead of using an offset, or if you're making extra repayments into a loan without redraw, you might be paying more interest than you need to.

An offset account reduces the interest charged by the balance you hold in it, without locking that money away. If your current loan doesn't offer offset, or charges a higher rate for the privilege, switching to a loan with a genuine offset can improve your cashflow and flexibility. Redraw is different - it allows you to pull back extra repayments, but access isn't always instant, and some lenders restrict how much or how often you can withdraw.

If your financial situation has changed, refinancing also gives you a chance to adjust your loan structure. You might want to split part of your loan to fixed and part to variable, consolidate investment and owner-occupied loans under one facility, or move from interest-only back to principal and interest.

The refinance process is also the moment to check your borrowing capacity. If your income has increased or your expenses have dropped, you may be able to negotiate account-keeping fee waivers, higher loan amounts, or access to premium loan products that weren't available when you first borrowed.

You're consolidating debt to reduce monthly repayments and improve cashflow

If you're carrying personal loans, car loans, or credit card balances alongside your mortgage, consolidating that debt into your home loan can reduce your total monthly repayment and simplify your finances.

Personal loans and car loans typically charge higher interest rates than a mortgage, sometimes double or more. Rolling those into your home loan means you're paying mortgage rates on the consolidated amount, which lowers the interest cost. The trade-off is that you're spreading short-term debt over a longer mortgage term, so while monthly repayments drop, the total interest paid over the life of the loan can increase unless you keep making the same total repayment you were making before.

Lenders will assess the consolidated amount as part of your total borrowing and check that your income supports the new loan size. If you're also releasing equity or increasing your loan-to-value ratio above 80 per cent, lender's mortgage insurance may apply, which adds to the upfront cost.

Consolidation works when cashflow is tight and the monthly saving is immediate and meaningful. It's less useful if you're close to paying off those smaller debts anyway, or if you're likely to run up new credit card balances after consolidation, because then you've just shifted the problem without solving it.

The refinance process takes longer than most people expect

Most borrowers assume refinancing is quick because they already own the property and have a loan in place. In reality, the process usually takes four to six weeks from application to settlement, and longer if there are valuation delays or serviceability questions.

The new lender will order a valuation, assess your income and expenses, check your credit file, and review your current loan contract. If the valuation comes in lower than expected, your loan-to-value ratio changes and the amount you can borrow may reduce. If your income or employment has changed since your last application, the lender may ask for additional documents or reduce the amount they're willing to lend.

You'll also need to arrange discharge of your current loan, which involves a fee from your existing lender and coordination between solicitors or conveyancers. If your current loan is fixed and you're breaking early, the lender will calculate a break cost based on the difference between your fixed rate and current wholesale rates. That cost can run into thousands of dollars and may wipe out any saving from switching.

Start the conversation at least two months before you need the new loan in place, especially if your fixed rate is ending on a set date or you're planning to use released equity for a time-sensitive purchase.

Call one of our team or book an appointment at a time that works for you. We'll run through your current loan, check what's available in the market, and let you know whether refinancing makes sense for your situation right now.