Refinancing Costs: When Switching Home Loans Pays Off

Refinancing means replacing your home loan with a new one, either with another lender or with a different product at your current lender. People usually do it to get a lower rate, but it costs money to switch. This guide lists the costs, shows how to work out how long a lower rate takes to pay them back, and explains the term trap that can wipe out the saving. Figures were checked on 29 October 2026.

HomeLoansCalculator.au is a general information site run by Dominet BV. This page is general information only and is not financial advice. It does not consider your objectives, financial situation or needs. We are not a lender or a mortgage broker and we don't recommend any loan. Check with a licensed professional or the lender before you act. Figures were checked on 29 October 2026. Read our general information notice. The examples use made-up loans and fees, not any lender's real pricing.

Why people look at refinancing now

Moneysmart's switching page, updated on 29 October 2026, says the RBA raised the cash rate four times so far in 2026, in February, March, May and September. The RBA's cash rate target has been 4.60% since 30 September 2026. Moneysmart also says variable home loan rates on the market can differ by more than 2%, so the rate you pay may be well above what a new customer could get.

Its first suggestion is to ask your current lender for a better rate before you switch. Having at least 20% equity and a good credit score gives you more to bargain with.

The costs of switching

Moneysmart lists these costs to compare:

Your new lender may also charge other setup costs. Ask both lenders for a full list in writing.

Break fees

Moneysmart's glossary says a break fee can be very high, and that generally, the more interest rates have come down since you fixed, the higher the fee. ASIC's Regulatory Guide 220 explains that break fees are usually based on the gap between your fixed rate and the rate at the time you leave, over the rest of the fixed term. If your fixed rate is below current rates, the fee is usually lower or nil. Only your lender can tell you the actual figure. Ask for it in writing on the day you plan to switch, because it changes as rates move.

What lenders can't charge

ASIC's Regulatory Guide 220 explains that from 1 July 2011, the National Credit Regulations prohibit early termination fees on residential loans, with limited exceptions. Break fees and standard discharge fees are among the fees that can still apply. RG 220 also notes that break fees aren't charged on variable rate loans. So for a variable loan taken out after 1 July 2011, you should generally expect a discharge fee rather than an exit fee, but check your contract.

LMI on a refinance

If your loan would be more than 80% of the property's value, the new lender may require LMI, which you would pay again even if you paid it on your current loan. Moneysmart warns this can outweigh the saving from a lower rate and suggests asking for a partial refund of LMI on your current loan if you switch. See our LMI guide for how LVR works.

How to work out the break-even point

The basic test is simple:

Months to break even = total switching costs ÷ monthly repayment saving

This works when you keep the same loan amount and the same remaining term. Moneysmart's mortgage switching calculator does a fuller version, and it assumes upfront costs are added to the loan.

Worked example 1 (example figures). You owe $500,000 with 25 years left at 6.8% a year. Monthly repayments are $3,470.36. A new loan at 6.3% over the same 25 years needs $3,313.82 a month.

• Monthly saving: $3,470.36 − $3,313.82 = $156.54
• If switching costs $1,250: $1,250 ÷ $156.54 = 7.99, so 8 months to break even
• If switching costs $3,000: $3,000 ÷ $156.54 = 19.16, so 20 months to break even

Break-even times here are rounded up to whole months, because the saving only covers the costs once that month's repayment has been made.

• Total interest over 25 years: $541,108 at 6.8% versus $494,145 at 6.3%, a difference of about $46,963 before costs

Worked example 2, adding the costs to the loan (example figures). If $3,000 of costs are added to the new loan, you borrow $503,000 at 6.3% over 25 years. The repayment is $3,333.70, still $136.66 a month less than the old loan. You pay interest on the extra $3,000 over the whole term, so paying the costs upfront is cheaper if you can.

The term trap

Moneysmart warns that if you don't specify the term, you could end up with a longer loan than the years left on your current one. Longer loans cost more interest.

Worked example 3 (example figures). Same $500,000 loan, but the new loan is set at 30 years instead of 25.

• Repayment at 6.3% over 30 years: $3,094.86 a month
• That looks like a $375.50 monthly saving against $3,470.36
• Total interest over 30 years: about $614,151
• Total interest over 25 years at 6.3%: about $494,145

The lower repayment comes from stretching the loan by five years, and it costs about $120,000 more in interest than keeping the term at 25 years.

Worked example 4, keep paying the old amount (example figures). If you switch to 6.3% over 25 years but keep paying $3,470.36 a month, the loan is paid off in 270 months (22 years and 6 months). Total interest falls to about $435,978. That's about $105,130 less than staying at 6.8%. Check that the new loan allows extra repayments without fees. Our extra repayments guide explains how this works.

Moneysmart's example

Moneysmart describes a couple, Simon and Tiana, whose fixed rate period was ending. They compared two loans, one with a $600 application fee and one with a $300 fee, and picked the one with the lower rate despite the higher fee. Moneysmart says switching would save them $84,040, or $280 a month, over their 25-year loan, and they would recover the switching costs in five months. The point is the same as our examples: a lower rate often outweighs a slightly higher upfront fee, as long as you keep the loan long enough.

Things that are easy to miss

• Your offset account. Moneysmart's offset page says an ASIC review found cases where offset accounts weren't linked properly. After refinancing, check that any offset account is linked to the new loan and that interest is being reduced.
• Features you'll lose. A cheaper loan may not have an offset account or free extra repayments. Compare using the Key Fact Sheet and the comparison rate.
• Fixed rate periods. If you're refinancing into a fixed loan, see fixed vs variable for the trade-offs.
• A new credit check. You'll go through a full assessment again, including the serviceability buffer. See borrowing power.
• Timing. If you plan to sell or switch again soon, you may not keep the loan long enough to break even.

What this means for you

• Ask your lender for a lower rate first. It costs nothing.
• Get every switching cost in writing from both lenders, including any break fee and LMI.
• Divide the costs by the monthly saving to see how many months you need to keep the loan.
• Keep the term close to the years you have left, or keep paying your old repayment.
• After switching, check that your offset account and repayments are set up correctly.

Use the refinance cost calculator to run your own numbers, or go back to the calculators hub.

Frequently asked questions

How much does it cost to refinance a home loan?

It depends on the lenders and your loan. Moneysmart lists break fees on fixed loans, discharge fees, application fees, switching fees, and possibly stamp duty and LMI. Some of these may be zero. Ask each lender for the full amount in writing.

Can my lender charge me an exit fee for leaving?

ASIC's RG 220 says the National Credit Regulations prohibit early termination fees on residential loans entered into from 1 July 2011, with limited exceptions. Break fees on fixed loans and standard discharge fees can still apply.

How do I know if refinancing is worth it?

Divide your total switching costs by the monthly saving to get the break-even point in months. If you expect to keep the loan well beyond that point and the term stays the same, switching usually saves money. In our example, $3,000 of costs is recovered in 20 months, rounded up to whole months.

Will I have to pay LMI again?

You might. Moneysmart says if you have less than 20% equity, you may have to pay LMI on the new loan. It also suggests asking your current lender about a partial refund of the LMI you paid.

Should I refinance to a 30-year loan to lower my repayments?

It lowers the repayment but usually adds a lot of interest. In our example, resetting a $500,000 loan from 25 to 30 years at 6.3% adds about $120,000 in interest. Moneysmart suggests keeping a similar term to what you have left.

What is a break fee?

A fee you may pay to leave a fixed rate loan early. Moneysmart says it can be very high, and generally the more rates have fallen since you fixed, the higher it is. Only your lender can give you the exact amount.