Refinancing
Switch lenders to get a lower rate or better features
What is Refinancing?
Refinancing means paying out your existing home loan and taking out a new one, usually with a different lender offering a better rate or terms. The Australian mortgage market is competitive and many borrowers can save tens of thousands by refinancing every few years.
How it works
- 1Compare your current rate against market rates (check RBA mortgage rate data)
- 2Apply to a new lender with a competitive rate
- 3New lender pays out the old loan and registers a new mortgage
- 4You start paying the lower rate, reducing monthly repayments or paying off sooner
- 5Cashback offers (typically $2,000–$4,000) are common and can offset switching costs
Worked example
Loan balance: $520,000, 30 years left. Current rate: 6.45%. New rate: 5.85%. Repayments fall from $3,270 to $3,068: $202 a month, $2,424 a year. Refinancing costs: discharge fee $300 + new lender establishment $600 = $900. Break-even: $900 ÷ $202 = about 4.5 months. With a $3,000 cashback: first-year benefit $2,424 + $3,000 – $900 = $4,524.
Pros
- Lower interest rate saves significant money over the loan life
- Cashback offers often cover switching costs entirely
- Access to better features: offset, redraw, split rate options
- Can consolidate debts at lower mortgage rate
Cons
- Discharge fees from existing lender (typically $150–$400)
- New lender establishment fees (typically $300–$600)
- Fixed rate break costs can be very high, check before refinancing a fixed loan
- Time and paperwork: full application, valuation, and legal process required
Risks
- Extending loan term while refinancing resets amortisation, more total interest even at lower rate
- Lenders mortgage insurance (LMI) may apply again if LVR has deteriorated
- Introductory/honeymoon rates revert to higher standard variable rates, check the revert rate
Tax treatment
Refinancing costs for an investment property are deductible, borrowing expenses spread over 5 years or the loan term (whichever is shorter). Discharge costs: deductible in the year incurred for investment loans. For owner-occupied PPOR loans: costs are not deductible. ATO reference: QC 18069.
Official references
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General Advice Warning
The information on this site is general in nature and does not consider your personal circumstances, financial situation, or needs. Before acting on any information, you should consider its appropriateness having regard to your own situation and seek professional advice from a licensed financial adviser, mortgage broker, accountant, or solicitor.