When to refinance your home loan in Australia

Refinancing is the Australian national sport that is not cricket. Households switch lenders for a rate, a cashback, an offset they should have had already, or because a broker called at the right moment of annoyance. Some of those switches are worth thousands. Some buy a $3,000 cashback and a worse comparison rate, then reset a 30-year term so the debt outlives the bathroom.

This piece is about when. The how is a separate operational guide. The fee list is a third. Together they are the refinance desk.

A rate gap is necessary, not sufficient

Start with the interest difference on your balance, not a $150,000 comparison-rate toy. Saving 0.40 per cent on $520,000 is about $2,080 a year before principal dynamics. If discharge, new establishment, valuation and broker (if any) total $1,400, you are ahead in year one even without cashback — if the new loan's fees do not claw it back annually, and if you do not stretch the term.

If you have 22 years left and the new lender cheerfully offers 30, the lower rate can cost more interest. Insist the new term is no longer than the remaining term unless you need the cashflow. Needing the cashflow is a valid reason; accidentally taking it is not.

Cashback is a bright object

Two or three thousand dollars at settlement is real money. It is also often funded by a slightly worse rate or a clawback if you leave inside 12–24 months. Divide the cashback by the extra interest. If the extra interest eats the cashback in 14 months and you like to refinance every year, you are a customer, not a winner.

Read the clawback. Early refinance of a cashback product is how people write cheques to the lender they just left.

Serviceability can block a 'better' loan

You got the current loan in 2021 on different rules. Today's buffer, HECS, a car loan, a newborn, a HECS-indexed balance, a cancelled overtime roster — any of these can mean you cannot refinance even at a lower rate. That is infuriating and it is the law of responsible lending plus APRA math.

If you might fail, fix the file first: cut card limits, wait out a probation period, or stay put. A declined refinance still leaves enquiries.

LVR and equity

Prices up, loan down: you may have dropped a rate band or become eligible to drop LMI on a top-up you do not even want. Prices down: you may be high LVR even after years of repayments. A refinance valuation is a risk event. If you are close to 80 per cent, a low val might push you into LMI on a switch, which is absurd and happens.

Life events that argue for waiting

• You will sell within a year. Pay discharge once.
• You are in a fixed term with ugly break costs. Sometimes you wait; sometimes you still break. Do the number.
• You just took cashback.
• You are about to change jobs or start parental leave. New lenders are less romantic than your current one, which already knows you.

Life events that argue for moving

• Your rate is a revert relic.
• You need a 100 per cent offset and do not have one.
• You are paying a package fee for features you do not use — switch to basic.
• You need to split or to drop a guarantor.
• The current lender will not remove LMI or match a genuine competitor quote (always ask them to match before you leave; sometimes they will).

Worked decision

Balance $480,000, 19 years left, 6.45 per cent. Competitor 5.99 per cent, same term, switch costs $1,200, cashback $2,000, no annual fee difference. Gross interest save ~$2,200 in year one. Net of costs and cashback you are ahead. If the competitor insists on 30 years, recalculate: the lower repayment is a term extension. Reset the term to 19 in the application.

Credit file hygiene

One or two enquiries for a refinance are normal. Six lenders in a fortnight looks like distress. Use a broker if you want a wide search without becoming a pinball, or apply yourself to two well-chosen lenders. Check your file on a free statutory service before you start so errors are not a surprise.

Refinance when the spreadsheet, the serviceability, and the next five years of your life agree. When only the billboard agrees, stay.

The 'we just want an offset' refinance

Switching only to add a 100 per cent offset can be worth it if you will park a meaningful balance. If you will park $2,000, you have paid discharge fees for a story. Do the offset arithmetic before you book a valuation.

Relationship refinance

Taking a person off a loan is not a rate event; it is a new assessment of the remaining borrower plus, often, a family-law letter. Timing a rate-grab at the same moment is ambitious. Sequence it: legal instructions, then credit.

When the current lender is the right stay

If they match the rate, waive a fee, and you like the app, staying is a refinance you did not have to settle. Ask. The worst they say is no, and you proceed with the step-by-step.

A two-hour annual review

Once a year, same week as insurance renewals: list rate, comparison rate, remaining term, fees, offset balance, and a competitor quote. If the gap pays for the switch inside 18 months and you can pass assessment, start the process. If not, stay. This is dull. Dull saves more money than a cashback tweet.

If you have a fixed portion ending in that year, the review happens 90 days before revert, not after you have already been dumped onto a standard variable.

Keep the current lender honest

Once a year, send them a real competing offer. Retention desks exist because your loan is an asset on their book. Sometimes they match. Sometimes they offer a smaller cashback to stay. Sometimes they shrug. Shrugging is useful information: you now know the switch cost is worth paying.

Do not refinance because a stranger on the phone knew your balance. That stranger bought a lead list. Hang up and use the method in this hub, including the fee list.