“Refinancing is free” and “refinancing costs a fortune” are both wrong. The truth sits in between, and it’s easy to calculate once you know the pieces. This guide lays out every cost involved, shows you how to work out your break-even point, and explains how to beat the cost entirely in some cases.
The costs, one by one
Here’s everything that can be involved in a refinance:
- Discharge fee (from your current lender): roughly $250-$400. A fee for closing out your existing loan.
- Mortgage registration and de-registration (government): around $200-$400 total, to update the mortgage on the title.
- New loan establishment/application fee: anywhere from $0 to $1,000, many lenders waive this, especially with a refinance offer.
- Valuation fee: often free (desktop valuation), sometimes $300-$500 for a physical inspection.
- Break costs: only if you’re leaving a fixed-rate loan mid-term. These can be significant, potentially thousands on a long-dated fixed loan.
- LMI again: only if your new loan is above 80% LVR. If you’re comfortably under 80%, this doesn’t apply.
For a straightforward variable-to-variable refinance under 80% LVR, the total is usually $500-$2,000. The big variables are break costs (fixed loans) and LMI (high-LVR loans).
How to calculate your break-even
This is the number that actually matters. Your break-even is the point where your accumulated monthly savings equal the total switching cost.
The simple formula:
Break-even (months) = Total switching cost ÷ Monthly saving
Say your refinance costs $1,500 all-in, and the lower rate saves you $250 a month. Your break-even is $1,500 ÷ $250 = 6 months. After that, you’re purely ahead. If you plan to keep the loan longer than the break-even period (almost always the case), the refinance pays off.
If the break-even is over two years, be more cautious, something might change before you recoup the cost. Under a year, it’s usually a clear win.
How to beat the cost
Several ways to reduce, or eliminate, the cost of refinancing:
- Use a cashback offer to cover fees. When available, a refinance cashback of $2,000-$3,000 can more than cover your switching costs, making the refinance effectively free, provided the rate stacks up.
- Choose a lender that waives establishment fees. Many do, especially for refinancers they’re trying to win.
- Avoid breaking a fixed loan. If you’re mid-fixed-term, wait until it ends, or use an equity top-up instead of a full refinance to avoid break costs.
- Stay under 80% LVR. This avoids LMI entirely. If you’re close, a slightly larger contribution can tip you under the threshold.
- Time it around your fixed term. If you’re on a fixed rate, waiting until it expires avoids break costs altogether, turning a potentially expensive refinance into a cheap one.
The order of these matters. Before assuming a refinance is too costly, check whether you’re actually exposed to the two big variables, break costs and LMI. Most straightforward variable-to-variable refinances under 80% LVR avoid both entirely, which is why the typical cost lands at the lower end of the range. It’s usually the fixed-rate break cost or the high-LVR LMI that makes a refinance expensive, and both can often be planned around.
The cost of NOT refinancing
Here’s the part people forget. The biggest cost isn’t the refinancing fees, it’s staying on a rate that’s higher than it needs to be. If you’re paying 0.5% more than the market on a $600,000 loan, that’s roughly $3,000 a year, every year, dwarfing the one-off switching cost.
The switching cost is a one-time hurdle. The loyalty-tax cost compounds indefinitely. That’s why the question is rarely “can I afford to refinance?” and more often “can I afford not to?” See the six signs it’s time to refinance to check where you stand, or explore your refinancing options directly.
Want your exact break-even calculated? A 15-minute call runs your real switching costs against your potential saving, and tells you honestly whether it’s worth it.
Book a 15-min call -> · 0461 117 777
A worked example
Say you’re on a $600,000 variable loan at 6.6%, and you can refinance to 6.1%:
- Monthly saving from the 0.5% drop: roughly $195/month
- Switching cost: ~$1,200 (discharge, registration, no establishment fee, desktop valuation)
- Break-even: $1,200 ÷ $195 = ~6.2 months
- First-year net saving (after costs): roughly $1,080
- Five-year net saving: over $10,000
The $1,200 upfront looks like the cost. The real cost was the $195 a month you were overpaying before you switched.
The bottom line
Refinancing isn’t free, but for a genuine rate saving, the cost is modest and recouped quickly. Calculate your break-even, watch for break costs and LMI, and remember that the largest cost in the equation is usually the higher rate you’d pay by doing nothing.
To get your break-even calculated, book a 15-minute call with Harbir.
Or call 0461 117 777 | Email info@creditstar.com
Frequently Asked Questions
Q1. How much does it cost to refinance a home loan?
Ans. Typically $500-$2,000 for a straightforward refinance, discharge fee, registration, and any establishment fee. Break costs (on fixed loans) and LMI (above 80% LVR) can add to this.
Q2. What is a discharge fee?
Ans. A fee your current lender charges to close out your existing loan when you refinance away, usually $250-$400.
Q3. How do I calculate my refinance break-even?
Ans. Divide the total switching cost by your monthly saving. If refinancing costs $1,500 and saves $250/month, your break-even is 6 months, after which you’re ahead.
Q4. Are there break costs when refinancing?
Ans. Only if you leave a fixed-rate loan mid-term. Break costs can be significant on long-dated fixed loans. Variable loans don’t have break costs.
Q5. Will I pay LMI again when I refinance?
Ans. Only if your new loan is above 80% LVR. If you’re comfortably under 80%, no LMI applies. If you’re close, a small extra contribution can help you avoid it.
Q6. Can refinancing be free?
Ans. Effectively yes, if a cashback offer covers your switching costs and the lender waives establishment fees. The rate still needs to stack up for it to be genuinely worthwhile.
Q7. Is refinancing worth it for a 0.5% rate drop?
Ans. Usually yes. On a $600,000 loan, 0.5% is roughly $3,000/year, which recoups typical switching costs within months and keeps saving after that.
Q8. What’s the biggest cost of refinancing?
Ans. Often the cost of NOT doing it, staying on a higher-than-market rate. That loyalty-tax cost compounds every year and usually dwarfs the one-off switching fees.
Q9. How long does it take to recoup refinancing costs?
Ans. For most rate-driven refinances, 6-12 months. If your break-even is over two years, be more cautious about whether it’s worthwhile.
Q10. Can I avoid establishment fees when refinancing?
Ans. Often yes, many lenders waive establishment fees for refinancers they’re trying to win. A broker can identify which lenders are currently doing so.
This guide is general information only and doesn’t take into account your personal situation. Rates, fees and lender policies change, confirm current figures before relying on any specific number. For advice specific to your circumstances, book a call with Harbir Hundal, Credit Representative 506564 of BLSSA Pty Ltd ACN 117 651 760, Australian Credit Licence 391237.
