When Does Refinancing Actually Make Sense?

Refinancing means replacing your current home loan with a new one — usually with a different lender — to get a better rate, a better structure, or to access equity. Done well it can save real money. Done for the wrong reason, it can quietly cost you. Here's how to tell the difference.

Good reasons to refinance

Your rate is no longer competitive. Lenders often reserve their sharpest pricing for new customers. If your rate is well above what's currently advertised for a similar borrower, that gap is money.
Your situation has improved. More equity, a higher income or a better credit profile can unlock lower rates or remove LMI.
You need a better structure. Adding an offset account, splitting the loan, or moving from interest-only to principal and interest on the right portion.
You want to consolidate higher-rate debt — carefully, and ideally with a plan to pay the consolidated amount down faster.
You're accessing equity for a renovation or an investment deposit.

Look past the headline rate

The advertised rate is only part of the picture. Check the comparison rate, which folds in most fees, and add up the switching costs:

Discharge fee from your current lender;
New lender's application, valuation and settlement fees;
Government mortgage registration and discharge fees;
Break costs if you're on a fixed rate (these can be large — always ask for a figure in writing before you decide).

A simple test: divide the total switching cost by your expected monthly saving. If it takes more than about 18–24 months to break even, the case is weaker — especially if you might move or sell before then.

The cashback trap

Cashback offers can be genuinely good, but compare the rate you'll be on after the cashback, for the life of the loan. A $3,000 cashback attached to a rate that's 0.3% higher than the market can cost you far more than $3,000 over a few years on a large balance.

The term-reset trap

If you're 6 years into a 30-year loan and refinance to a fresh 30-year term, your repayments drop — because you've given yourself 6 extra years to pay. That can be the right call for cash flow, but if you can, keep the remaining term the same (ask for a 24-year loan) or maintain your old repayment amount so the savings go into paying the loan down, not stretching it out.

When to stay put

Your rate is already competitive and your structure suits you.
Break costs on a fixed loan wipe out the saving.
Your income or credit position has recently worsened, making approval uncertain and enquiries costly.
You're likely to sell within a year or two.

In some of these cases a quick repricing call to your current lender — asking them to match the market or lose you — gets most of the benefit with none of the switching cost. It's always worth trying first.