The Costs and Benefits of Refinancing Your Home Loan

Refinancing costs typically range from $1,000 to $3,000 depending on your lender, loan size, and whether you switch banks or stay internal.

The real question isn't whether refinancing has costs. It does. The question is whether those costs pay for themselves through rate reductions, feature improvements, or equity access that align with what you're trying to achieve. If you're switching to drop your rate by 0.8%, the upfront expense might recover within six months. If you're moving for an offset account you won't use, it probably won't.

Most Victorian borrowers refinance for one of three reasons: their fixed rate period is ending and they're about to revert to a higher variable rate, they've found a lower rate elsewhere, or they need to access equity for investment or renovation. Each scenario has different cost implications.

What You'll Actually Pay to Refinance

Application fees, discharge fees, valuation fees, and settlement fees make up the core costs. Application fees vary from zero to $600 depending on whether your new lender is running a retention campaign or charging standard rates. Your existing lender will charge a discharge fee, usually $300 to $500, to release the mortgage over your property. Valuation fees sit around $200 to $400 unless your loan size or property type requires a full assessment, which can push it higher. Settlement fees cover the legal and administrative work to register the new loan, typically $200 to $400.

If you're refinancing out of a fixed rate before expiry, break costs apply. These aren't flat fees. They're calculated based on how much the lender loses because you're leaving early. The formula compares the fixed rate you're paying against the wholesale rate the lender can earn by redeploying that capital. If rates have dropped since you fixed, break costs can run into thousands. If rates have risen, the break cost is usually zero because the lender can redeploy your funds at a higher rate.

Consider a borrower in Ballarat with $450,000 remaining on a fixed rate of 4.5%, locked in two years ago with 18 months left on the term. Variable rates have since dropped to 3.8%. The lender calculates the break cost by multiplying the rate difference (0.7%) across the remaining loan term and balance, discounted to present value. In this scenario, the break cost could be $4,000 to $5,000. The borrower needs to weigh that upfront cost against the interest saved by switching to the lower variable rate over the next 18 months and beyond.

When Refinancing Pays for Itself

Refinancing covers its own costs when the interest you save exceeds what you spend to make the switch.

A borrower with a $500,000 loan at 5.2% who refinances to 4.4% will save roughly $4,000 in interest over the first year. If the refinance costs $2,000, the saving recovers the expense in six months. After that, the reduction flows directly into reduced repayments or faster principal paydown. Over five years, the cumulative saving could exceed $20,000, assuming rates remain stable.

The calculation changes if you're refinancing for features rather than rate. Switching to access an offset account makes financial sense only if you maintain a balance in that account. An offset linked to a $400,000 loan with a consistent $30,000 balance effectively reduces your taxable interest by the amount sitting in offset. At a 4.5% rate, that's $1,350 per year in interest saved. If refinancing costs $1,800, you recover the expense in roughly 16 months. If the offset sits empty, you've paid to move your loan without gaining anything.

Equity access is a different scenario again. If you're refinancing to release equity for an investment property deposit or major renovation, the cost of refinancing becomes part of the acquisition cost. Consider a borrower in Geelong with a property valued at $700,000 and a remaining loan of $420,000. They refinance to access $80,000 in equity, bringing the new loan to $500,000. Refinancing costs $2,500. That cost is absorbed into the equity release and often added to the loan balance rather than paid upfront. The investment property they purchase with the $80,000 deposit generates rental income and potential capital growth, which should outweigh the refinancing expense over time.

Costs That Don't Appear on the Settlement Statement

Some refinancing costs aren't invoiced but still affect your outcome.

If your current loan has a redraw facility with $20,000 sitting in it, refinancing means you lose access to that unless you withdraw it before settlement. Redraw isn't portable between lenders. If you don't pull the funds out, they go toward reducing your loan balance at discharge, which is fine if that was your intention. If you were treating it as accessible savings, you've just converted liquid funds into equity.

Rate honeymoon periods also create a hidden cost if you're not aware of how they work. Some refinance offers advertise a discounted rate for the first 12 months before reverting to a higher ongoing rate. If you refinance based on the honeymoon rate and don't account for the reversion, you might end up paying more in year two than you were originally. Check the comparison rate and the revert rate, not just the introductory figure.

Lenders Mortgage Insurance isn't usually a refinancing cost unless you're increasing your loan balance above 80% of your property's current value. If you're releasing equity and pushing your loan-to-value ratio over that threshold, LMI applies to the portion above 80%. For a borrower refinancing from $350,000 to $450,000 on a property valued at $550,000, the LVR moves from 63% to 81%. That 1% over the threshold could trigger an LMI premium of several thousand dollars, depending on the lender's risk assessment.

What to Compare Beyond the Rate

Interest rates dominate refinancing decisions, but the loan structure determines whether the rate delivers value.

An offset account on a variable loan gives you flexibility to park savings and reduce interest without locking those funds away. A redraw facility on a fixed loan lets you access extra repayments, but withdrawal timeframes and restrictions vary between lenders. Some allow instant online redraw. Others require written requests and processing delays. If you're refinancing to improve cash flow access, check how the redraw mechanism actually operates, not just whether it exists.

Repayment flexibility varies significantly. Some lenders allow unlimited extra repayments on variable loans without penalty. Others cap additional repayments at $10,000 per year even on variable products. If you're planning to make lump sum repayments from bonuses or investment income, a cap could limit how aggressively you can reduce your loan.

Portability is relevant if you're likely to move property within the next few years. A portable loan lets you transfer the existing loan to a new property without refinancing again, saving another round of discharge and application fees. Not all lenders offer portability, and even those that do may impose conditions around timing, loan size, or property type.

How to Decide Whether Refinancing Is Worth It

Calculate your breakeven point by dividing total refinancing costs by your monthly saving.

If refinancing costs $2,200 and reduces your monthly repayment by $180, you break even in approximately 12 months. If you're planning to hold the property and loan for at least that long, refinancing makes sense. If you're selling within the breakeven window, the cost exceeds the benefit.

If your current loan has been active for more than two years, a loan review will usually reveal whether your rate is still aligned with what's available. Lenders price loans based on perceived risk and competitive positioning at the time of approval. A borrower who took out a loan three years ago might be on a rate 0.5% to 1% higher than what the same lender offers new customers today, even with identical circumstances. Refinancing, or negotiating with your current lender, closes that gap.

For borrowers coming off a fixed rate, the decision often hinges on what your lender offers as a revert rate versus what's available elsewhere. Most lenders will offer a retention rate if you ask before your fixed term expires, typically 0.2% to 0.4% below their standard variable rate. Compare that retention offer against external refinance options. If the retention rate is 4.6% and you can refinance elsewhere to 4.3%, the 0.3% difference might justify the switch depending on your loan size.

Call one of our team or book an appointment at a time that works for you. We'll calculate your refinancing costs against the saving or feature improvement you're after and tell you whether the switch delivers value or just moves the debt sideways.

Frequently Asked Questions