Refinancing: What It Costs and How to Work Out If It Pays Off
Refinancing has costs. Learn what they are, how to work out your break-even point, and three traps to watch for.
The short version
- Refinancing has one-off costs, so a lower rate only helps if you stay long enough to get that money back.
- The sum is simple: total costs ÷ monthly saving = months to break even.
- Watch out for fixed-rate break costs, cashback strings and a longer loan term.
A refinance is a bit like swapping energy providers. The new deal can be cheaper, but only if switching does not cost you more than you save. Let’s work through it in order.
What does refinancing cost?
Not every refinance has every cost, and some lenders waive fees. Here are the usual ones to ask about:
| Possible cost | What it is |
|---|---|
| Discharge fee | Charged by your current lender to close the loan and release the mortgage. |
| Application or setup fee | Charged by the new lender. Many waive this. |
| Valuation fee | To value your property. Sometimes free. |
| Settlement and government fees | To register the new mortgage and settle the switch. |
| Break cost | Only if you are leaving a fixed rate early. This one can be large, so check it first. |
| LMI | Possible if you owe more than 80% of the home’s value with the new lender. |
The break-even sum
Add up your total costs. Then work out how much less you would pay each month with the new loan. Divide the first number by the second.
Say you owe $700,000 and could cut your rate by 0.5 percentage points. That saves roughly $290 a month in interest. If switching costs you $1,500 in total, you break even in about 5 months ($1,500 ÷ $290). After that, you are ahead.
This example is illustrative only and ignores changes to your balance over time. Your own figures will differ.
If the break-even point is a year or two away, it can still be worth it, as long as you plan to keep the loan that long. If it is five years away, think harder.
Three traps to watch for
- The cashback. A cashback can offset your costs, but read the fine print. Some lenders claw it back if you leave within two or three years, and some offer it on rates that are higher than the best available.
- A longer loan term. If you refinance back to a new 30-year loan, your repayment drops, but you may pay far more interest over time. You can keep your old term, or pay extra, to avoid this.
- Rolling in other debts. Adding credit card or car loan debts to your home loan lowers the monthly payment, but you could be paying for that car for 30 years.
Get the Refinance Health-Check Worksheet
Plug in your numbers and work out your break-even point, step by step.
Send me the worksheetWe will email it straight to you.Your next steps
- Ask your lender for your payout figure and any break cost.
- Get a comparison of other lenders’ rates and fees.
- Do the break-even sum, then decide.
Sources and when we checked
Figures checked on 16 October 2026. Sources: ASIC MoneySmart (refinancing and switching costs); lender product disclosure information. The worked example is illustrative and not a quote. Rules, rates and thresholds can change, so confirm with the official sources or a broker before you act. This article is general information only and is not personal advice.
Want to talk it through?
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This article is general information only and does not take into account your personal financial situation, needs or objectives. Consider whether it is appropriate for you before acting on it. Figures and rules can change, so always check the latest details with the relevant authority.
Richard Morris is a Credit Representative (CRN 570376) of Strategic Mortgages Perth (ACR 570592), authorised under Connective Broker Services Pty Ltd (Australian Credit Licence 389328). This is not tax or legal advice. Please speak to your accountant or solicitor about your own situation.