When Should You Refinance Your Home Loan?
If you have not looked at your home loan in the past two years, there is a strong chance you are paying more than you need to.
The cash rate is sitting at 4.35%, plenty of people are rolling off cheap fixed rates onto much higher variable ones, and lenders quietly keep their best pricing for new customers. Loyalty rarely pays on a mortgage.
Here is the honest guide to when refinancing is worth it, what it really saves, what it costs, and the 2026 catch that traps some borrowers on a loan they would happily leave.
Cash rate: RBA, decision of 6 May 2026. Loyalty gap: RBA research, typically 0.3% to 0.7%. Figures as at June 2026.
The biggest sign you are paying too much
Your lender's loyalty discount is almost never as good as the deal it offers a new customer walking in the door. The RBA has documented this gap for years. Existing borrowers who never ask for a review typically pay somewhere between 0.3% and 0.7% more than new customers on a comparable loan.
That sounds small until you put a dollar figure on it. On a $700,000 loan, 0.5% is about $3,500 a year in interest you did not need to pay. The lender is banking on you not noticing.
What a 0.5% rate gap costs you each year
Extra interest per year from sitting on a rate just 0.5% too high. This is the loyalty tax, in dollars. Illustrative only.
When refinancing actually makes sense
You do not refinance for the sake of it. You do it when at least one of these is true:
Your rate is off the pace. If new customers are being offered noticeably less than you pay, that gap is money on the table every month.
You are rolling off a fixed rate. Coming off a low fixed rate onto your lender's standard variable is often the worst rate in the market. That is the moment to shop, not to coast.
You want to use your equity. If your property has grown in value, refinancing can release equity for a renovation or your next investment property, often at home loan rates rather than expensive personal debt.
You want to consolidate or restructure. Folding higher-interest debt into the loan, adding an offset, or splitting fixed and variable can all be reasons to move.
You can now drop LMI. If your equity has passed 20%, refinancing can get you out of a loan priced for a smaller deposit.
The costs, so the saving is real
Refinancing is not free, and any honest broker shows you the costs before you commit. They are usually modest, but break costs on a fixed loan can be the exception.
| Cost | What it is | Rough size |
|---|---|---|
| Discharge fee | Your old lender closing the loan | A few hundred |
| Government and setup fees | New mortgage registration and loan fees | Small |
| Valuation | New lender valuing your property | Often waived |
| Break costs | Leaving a fixed rate early | Can be large |
| LMI again | Only if you have under 20% equity | Avoid if you can |
Indicative only. Your exact costs depend on your lender and loan. We total them before recommending a switch.
The 2026 catch most posts skip
You have to pass the new lender's test at your rate plus 3%. APRA still requires lenders to assess you at a 3 percentage point buffer above the actual rate. Since rates climbed, some people who could comfortably keep paying their current loan cannot quite pass another lender's serviceability check. That is the refinance prisoner problem, and it is real.
High debt-to-income lending is now capped. From 1 February 2026, lenders limit how much new lending can go to borrowers at six times income or more. If your numbers are tight, that can narrow your options.
Big cashback deals have largely faded. The era of lenders throwing thousands at you to switch has cooled, so the case to refinance now rests on the rate and the structure, not a one-off sweetener.
This is general information, not financial or credit advice. Get advice specific to your situation.
How the switch actually works
The process is less painful than people fear. We check that the saving clears the costs and that you pass serviceability, pick the lender most likely to approve you, then handle the application, valuation and discharge. Most refinances settle in about four to six weeks, and your day-to-day involvement is small.
Crucially, we apply to one lender, not five. That protects your credit file and keeps the approval clean.
Check your position before you switch
Compass is our free investor tool. See your equity, your numbers and your borrowing position in one place, so you know where you stand before a refinance conversation.
Open Compass, freeBook a free strategy call
One short call, no obligation. We will check your current rate against the market, total the switching costs, and tell you honestly whether refinancing puts you ahead.
Book my free callMatty Teague, Mortgage Broker, Powered by Flint. Credit Representative 573962. Flint Group Pty Ltd ACL 488313.
FAQs
When is it worth refinancing your home loan?+
As a rough rule, it is worth a serious look if your rate is more than about 0.25% to 0.5% above what new customers are being offered, if you have not reviewed the loan in two years, if you are rolling off a fixed rate, or if your needs have changed (you want to access equity, consolidate debt, or drop lenders mortgage insurance). The saving has to clear the switching costs, which a broker can model for you in a few minutes.
How much can I actually save by refinancing?+
It depends on your rate and balance. A 0.5% rate cut on a $600,000 loan is roughly $3,000 a year, and about $4,000 on $800,000. Over a few years that adds up fast. The real number depends on your loan size, rate and how long you keep the new loan, so it is worth running your own figures rather than relying on an average.
What does it cost to refinance?+
Usually a discharge fee from your old lender (often a few hundred dollars), small government and new-loan fees, and a possible valuation fee. If you fixed your rate and break early, break costs can be significant. If you have less than 20% equity you may also pay lenders mortgage insurance again. A good broker totals these up first so you only switch if you come out ahead.
Is there a catch to refinancing in 2026?+
Yes. Lenders must assess you at your new rate plus a 3 percentage point serviceability buffer (APRA), and since 1 February 2026 they also limit high debt-to-income lending. With rates higher than when many people borrowed, some borrowers cannot pass another lender's test even though their current loan is fine. That is the so-called refinance prisoner problem, and it is worth checking before you get your hopes up.
Does refinancing hurt my credit score?+
A single refinance application has only a minor, short-lived effect on your credit file. The problem is applying to several lenders at once, which leaves multiple enquiries. A broker submits to the one lender most likely to approve you, which protects your file.
How long does it take to refinance?+
Most refinances settle within about four to six weeks, and with a broker doing the paperwork the effort on your side is small. Timing varies with the lender and how quickly the valuation and discharge come through.
Keep reading
Do I need a mortgage broker in Australia?
Matty reviews home loans against the whole market, tells you straight whether a switch puts you ahead once costs are counted, and handles the refinance end to end if it does.
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