Refinancing saves when the numbers actually stack up
Refinancing isn't about chasing the lowest advertised rate. It's about whether the change in your monthly repayments, combined with the upfront costs and any features you gain or lose, leaves you in a stronger financial position over the time you plan to stay with that loan.
Consider a borrower in Kew East with a $650,000 loan on a rate that's climbed to 6.5% after their fixed period ended. They're paying around $4,100 a month in principal and interest. If they refinance to a lower rate of 6.0%, the monthly repayment drops to roughly $3,900. That's $200 a month, or $2,400 a year. But if the refinance costs $1,500 in discharge fees, application fees and valuation, they're ahead by $900 in the first year and $2,400 every year after that, assuming rates stay flat. The saving compounds if they direct that $200 into the offset or redraw.
When a fixed rate period ends, the clock starts
Most lenders roll you onto their standard variable rate once your fixed term expires. That rate is often higher than what new customers are offered, sometimes by half a percent or more. You're not penalised for leaving at that point because there are no break costs, which makes it the most common trigger for refinancing in Melbourne.
In our experience, borrowers who let that window pass without reviewing their loan can stay on an uncompetitive rate for years. The difference between a standard variable rate and a discounted variable rate on a $650,000 loan could be $150 to $250 a month. Over three years, that's $5,400 to $9,000 in avoidable interest.
What refinancing actually costs
Expect to pay a discharge fee to your current lender, usually between $300 and $400. Some lenders charge an application fee on the new loan, though many have removed this. A property valuation might cost $200 to $300 unless the lender waives it. Settlement fees sit around $800 to $1,200 depending on whether you use a broker or go direct.
If you're coming off a fixed rate early, break costs apply. These are calculated based on the difference between your fixed rate and the wholesale rate the lender can now lend at for the remaining fixed term. If rates have dropped since you fixed, the break cost could be significant. If rates have risen, the break cost is often zero.
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Accessing equity through refinancing
Refinancing lets you release equity without selling. If your Kew East property has increased in value and your loan-to-value ratio has improved, you could borrow additional funds against that equity for purposes like buying an investment property, renovating, or consolidating other debts.
As an example, someone who bought in Kew East several years ago might have seen their property value rise while their loan balance has decreased through repayments. If the property is now valued higher and they owe less, they could access that equity by refinancing to a higher loan amount. The new funds are typically added to the loan and repaid over the remaining term, so the monthly increase in repayments needs to be sustainable.
Features matter as much as the rate
A loan with an offset account can deliver more value than a slightly lower rate without one. Every dollar in the offset reduces the interest charged on your loan without affecting your access to that cash. If you keep $30,000 in an offset on a $650,000 loan at 6.0%, you're only paying interest on $620,000. That saves roughly $1,800 a year.
Redraw facilities work differently. They let you withdraw extra repayments you've made, but access isn't always immediate and some lenders restrict how much you can pull out. Refinancing to consolidate debt into your mortgage can lower your overall interest cost, but only if you're consolidating higher-rate debts like credit cards or personal loans, and only if you're committed to not running those balances back up.
The process takes longer than most people expect
From application to settlement, refinancing usually takes four to six weeks. The lender will revalue your property, reassess your income and expenses, and check your credit file. If your financial situation has changed since you first borrowed, such as a drop in income, a new dependent, or additional debts, your borrowing capacity might be lower than it was.
Some lenders are faster than others, and some are more flexible with valuation requirements if you've recently refinanced or if the loan-to-value ratio is low. If you're trying to lock in a rate before it moves, timing matters. Rates can change between the day you apply and the day the loan settles, unless you've formally locked the rate with the new lender.
Should you switch to fixed or variable when refinancing?
This depends on where you think rates are heading and how much certainty you want. A variable rate gives you flexibility to make extra repayments and access features like offset accounts. A fixed rate gives you certainty over repayments for a set period, usually one to five years, but locks you in. If you want to sell or refinance again during that fixed term, break costs could apply.
Some borrowers split their loan, fixing part and leaving part variable. That gives them some rate protection while keeping access to flexible repayment features on the variable portion. There's no universal right answer, it depends on your risk tolerance and what you plan to do with the property over the next few years.
If you're staying with your current lender, negotiation is still refinancing
You don't always need to switch lenders to improve your rate or features. Some lenders will adjust your rate or waive fees if you threaten to leave, especially if you have equity and a clean repayment history. This is called a retention offer or an internal refinance.
The advantage is speed and lower cost, you avoid discharge fees, valuation fees, and the full application process. The downside is that retention offers are often less competitive than what a new lender will offer to win your business. It's worth comparing both options before committing.
Call one of our team or book an appointment at a time that works for you. We'll run the numbers, compare your options across lenders, and make sure the structure you land on actually matches what you're trying to achieve.
Frequently Asked Questions
How much does refinancing cost in total?
Expect to pay between $1,500 and $2,500 in total, including discharge fees, application fees, valuation, and settlement costs. Some lenders waive certain fees to win your business. If you're breaking a fixed rate early, additional break costs may apply depending on rate movements.
When is the optimal time to refinance a home loan?
The most common time is when your fixed rate period ends, as there are no break costs and you're often moved to a higher standard variable rate. Refinancing also makes sense if rates have dropped significantly, your property value has increased, or you need to access equity.
Can I refinance if my financial situation has changed?
Yes, but the lender will reassess your income, expenses, and credit file. If your borrowing capacity has reduced due to lower income or higher debts, you may not qualify for the same loan amount. Equity in your property helps offset some of that risk.
Does refinancing to access equity increase my repayments?
Yes, borrowing additional funds increases your loan balance, which raises your monthly repayments. The increase depends on how much equity you access and the loan term. It's important to ensure the new repayment level is sustainable before proceeding.
How long does the refinancing process take?
Refinancing typically takes four to six weeks from application to settlement. This includes property valuation, income verification, and credit checks. Some lenders are faster, and the timeline can be shorter if your loan-to-value ratio is low.
