When refinancing a home loan is actually worth it

Most people decide a refinance on the headline rate alone: a new number is lower, so switching must be good. That is the wrong test, and it is how owners end up paying to move a loan for no reason. The question that matters is narrower and more useful — does the amount you save each repayment pay back what the switch costs, before you would otherwise have finished the loan?

Everything below follows from that one question. If you would rather plug your own numbers in, the calculator on the home page answers it directly.

Step 1: get your own lender's best offer first

Before comparing anyone else's rate, ask your current lender what they can do. Retention offers are routine, and comparing a switching quote against a rate you already hold — rather than against your lender's best available offer — is not a real comparison. ASIC's guidance on refinancing notes that people should compare offers carefully on the loan's features and costs, not on the number at the top of an advertisement.

Whatever they come back with becomes your baseline. If their best offer is already close to what you have been quoted elsewhere, the case for switching weakens considerably — and you avoid the discharge fee and the disruption for nothing.

Step 2: add up what switching will actually cost

A switch is not free. ASIC specifically flags that discharge fees, loan arrangement fees and lenders mortgage insurance can add up to more than a lower rate saves. Moneysmart sets out the usual categories:

• Discharge (or termination) fee — charged when you close your current loan. It is in your existing contract, so you can look it up today.
• Application fee — an upfront fee when you apply for the new loan, if that lender charges one.
• Break fee — if you are on a fixed rate and leave early, you may have to pay to break it.
• Lenders mortgage insurance — possible if you have less than 20% equity. Moneysmart warns this can increase the cost of switching enough to outweigh the savings from a lower rate.
• Valuation, legal and government charges — these vary and are often the least expected line.

Get a number for each one. An estimate you write down yourself is worth far more than a vague sense that switching "costs a bit". The calculator has a field for each of these categories so the total lands in one place.

Step 3: work out the break-even point

Divide the one-off costs by what you save in each repayment. If switching costs $3,900 and the new loan saves $180 a fortnight, you need roughly 22 payments — a little over five months — before you are ahead.

Now compare that to the term you have left. If you have 20 years left, a five-month payback is comfortable. If you have 18 months left on the loan, the same switch cannot possibly pay back its costs, however good the rate looks. This is the single most common reason a refinance that looks good on paper is not worth doing.

Step 4: check what you would be giving up

Rate is only one part of a home loan. Before you commit, compare the two contracts properly:

• Offset and redraw. An offset account reduces the interest-bearing balance daily, so money sitting in one can be worth more than a small rate reduction. ASIC notes that some borrowers switch and then discover the feature they relied on is gone — or that rebuilding the balance of an offset costs them more than the switch saved.
• Features you do not use. ASIC suggests checking you are not paying for features or add-ons you never use. A lower rate with features trimmed out can be a better outcome than a similar rate that keeps expensive extras.
• Incentives and cashback. There are a lot of incentives to switch mortgages. ASIC's guidance is to compare them closely and do the maths: a cashback offer still has to put you ahead over the long term once you set it against interest and fees. A one-off payment is not a permanent discount.
• Repayment frequency. If you currently repay fortnightly and the new loan only offers monthly, the payments will not line up. Check it, because a switch that forces you onto monthly repayments can quietly cost you money over a year of higher effective interest.

Step 5: sanity-check against the market

Lenders price off the cash rate target, so it is worth knowing where it stands. As at 30 September 2026 the Reserve Bank of Australia had the cash rate target at 4.60%, following an increase of 25 basis points to 4.60% decided on 29 September 2026 ( RBA media release 2026-27). Your own rate depends on your loan, your LVR and the market on the day — so treat that number as background, never as a quote.

So when is it worth it?

On the evidence ASIC and Moneysmart lay out, switching tends to pay when all of these are true:

• Your current lender's best offer is clearly worse than what you have been quoted.
• The break-even point lands comfortably inside your remaining term.
• You are not giving up an offset, redraw facility or features you actively use.
• You are not above 80% LVR in a way that triggers LMI or a tougher assessment.
• The total saving over the full term is bigger than the total cost of switching.

And when the term is short, the equity is thin, or the offset is large, the honest answer is often to stay where you are. That is a legitimate outcome, not a failure — and it is exactly what the calculator is built to tell you.

Sources

• ASIC — Switching home loans? ASIC tips for refinancing
• Moneysmart — Switching home loans
• Reserve Bank of Australia — Cash Rate Target (read on 1 October 2026)
• Reserve Bank of Australia — Media release 2026-27, 29 September 2026