A lower repayment can come from a better interest rate. It can also come from giving yourself another eight years to repay the debt.
That difference matters before you pay to move your home loan. Discharge fees, fixed-rate break costs and the new loan’s charges can take time to recover. If the repayment falls mainly because the loan runs for longer, the saving you expected may be much smaller—or disappear over the life of the loan.
The useful question is whether refinancing leaves you better off after the costs, over the period you expect to keep the loan. Start with a complete switching quote, then compare repayments on the same balance and remaining term.
Get the whole switching bill before comparing savings
There isn’t one standard refinancing fee. Ask your current lender what it will cost to close the loan, and ask the proposed lender for an itemised estimate of setting up the replacement. Keep quoted amounts separate from costs that still need confirmation.
Use this list to check the estimate. Not every charge applies to every loan, and a waived application fee does not mean the whole refinance is free.
| Possible cost | What to ask |
|---|---|
| Discharge or closing fee | What does the current lender charge to close the loan? Is this separate from title and settlement charges? |
| Fixed-rate break cost | Does leaving before the fixed period ends trigger a charge? What is the estimate for the intended settlement date? |
| Application or establishment fee | Is the new lender charging it, waiving it or making the waiver conditional? |
| Valuation fee | Will the lender arrange the valuation, and who pays for it? |
| Legal and settlement charges | Are legal work, settlement handling and any electronic settlement charges included or separate? |
| Title-registration charges | What government charges apply to discharging the old mortgage and registering the new one? |
| Lenders mortgage insurance | Will the new borrowing require it, and will the premium be paid upfront or added to the loan? |
NAB’s explanation of refinancing costs covers these main fee categories. Your own written quote matters more than a general fee range.
Registration charges depend on the property’s state or territory. For example, Land Services Victoria publishes its current land-registration fee guides. Ask the lender or settlement professional to identify the charges for your transaction rather than applying one state’s fees across Australia.
A break-cost estimate needs a date
If part or all of the loan is fixed, check the cost of leaving before that fixed period ends. The amount can depend on the loan, time remaining and wholesale interest-rate movements. Westpac’s explanation of fixed-loan break costs describes these factors. An estimate obtained early in your research may need updating before settlement.
Ask for two comparisons if the fixed period is close to ending: switching now, and switching after it finishes. Include the repayments you would make while waiting. A smaller exit bill later does not, by itself, show which date is cheaper overall.
The valuation can change the cost of the new loan
The property value used by the incoming lender affects your loan-to-value ratio, or LVR. This is the loan amount divided by the lender’s assessed property value, expressed as a percentage. An online estimate or a price you hope to achieve at sale may differ from that assessment.
For a hypothetical $600,000 refinance, an $800,000 valuation produces a 75% LVR. If the accepted value is $740,000, the same borrowing is about 81.1%. That difference is a reason to confirm the valuation before relying on a low-LVR offer.
Lenders mortgage insurance (LMI) generally applies when borrowing exceeds 80% of the property’s value, although lender rules and exceptions vary. It protects the lender if the borrower cannot repay; it is not insurance for your repayments.
Having paid LMI on an earlier loan does not automatically cover the replacement loan. NAB’s LMI guidance explains that its cover is not transferable to another financial institution and that refund conditions apply. Ask your lenders about a new premium and any refund. Add the quoted cost to the comparison, including any effect of borrowing to pay it.
Check what changes after settlement
A loan can have a lower rate and a higher annual fee. Compare package fees, account fees and any charges for features you expect to use. Convert annual fees to a monthly amount when checking your household budget, but also note when the payment is actually due.
An offset account needs its own comparison. Its balance reduces the loan amount charged interest, but a loan offering offset may have higher fees or a higher rate. Estimate the balance you would normally keep there, rather than using the best balance you have ever had. Moneysmart’s offset account guide explains this trade-off.
The comparison rate helps, but it is not your switching quote
A comparison rate combines the interest rate with certain fees using stated assumptions. It can help with a shortlist, but it does not capture every cost or benefit of your refinance. CommBank’s comparison-rate explanation, for example, lists exclusions such as government charges and some event-based fees, and warns that different amounts and terms can change the result.
Ask for a personalised comparison using your balance, term and repayment type. Check when any introductory discount ends and what rate applies afterwards. A cheaper first year needs to be weighed against the years that follow.
Put the costs through a break-even check
A simple cash-flow check asks how many months of lower repayments it takes to recover the upfront switching bill. First allow for the difference in ongoing fees.
Worked example: the term stays at 22 years
This is a hypothetical principal-and-interest loan, not a current offer. Both options have a $500,000 balance, 22 years remaining and monthly repayments. Switching costs are paid separately.
| Assumption | Current loan | New loan |
|---|---|---|
| Annual interest rate | 6.20% | 5.80% |
| Monthly loan repayment | About $3,474.72 | About $3,356.53 |
| Annual ongoing fee | $0 | $240 |
| Upfront switching costs | — | $2,000 |
The repayment falls by about $118.19 a month. Allowing $20 a month for the new annual fee leaves a cash-flow improvement of about $98.19.
$2,000 ÷ $98.19 ≈ 20.4 months
Around 21 months to recover the upfront costs through the lower regular outgoings.
If the lower repayment and fee difference stayed unchanged for two years, the cash-flow benefit after the $2,000 switching cost would be about $357. That is a much smaller figure than the gross repayment reduction suggests.
These estimates use a standard monthly repayment formula with interest at the annual rate divided by 12. Actual lender calculations and payment timing can differ. Rates and fees are assumed unchanged, and the example has no offset balance, extra repayments, cashback or LMI.
This is a first check, not a complete measure of economic savings. It compares money going out, without comparing the loan balances remaining at each date. To assess total value, compare interest, fees and remaining debt over the same period. Run the figures through Moneysmart’s mortgage switching calculator, and check its assumptions against the quote.
What changes if the $2,000 is added to the loan?
The replacement balance becomes $502,000. Repayments and interest must be recalculated on that higher amount, so the example above no longer applies. Paying a fee through the loan spreads the cash payment; it does not remove the cost.
A longer term can hide a higher total cost
Keep the same hypothetical $500,000 balance and 5.80% rate, but extend the replacement loan from 22 to 30 years. The monthly repayment drops to about $2,933.77. The additional reduction comes from taking longer to repay the debt.
At those unchanged rates, estimated interest is about $386,125 for the 22-year replacement loan, compared with $556,155 over 30 years, before fees. The current 22-year loan at 6.20% would have about $417,327 in interest. In this example, the lower-rate 30-year loan costs more interest than keeping the current loan.
A longer term may still serve a cash-flow need. Treat that as a separate decision and ask for both term options. Moneysmart’s home-loan comparison guidance explains how the term affects repayments and interest, and recommends comparing loan information using your circumstances.
What if you expect to sell or refinance again soon?
Compare the cost over that shorter period, including entry costs, any relevant exit charges and remaining debt. A refinance that looks attractive over ten years may not recover its costs before a sale in eighteen months. Test a later sale date too, because plans can change.
Give your current lender a chance to quote
Before committing to switching costs, ask the existing lender to review your rate. Moneysmart recommends asking for a better deal as part of the switching comparison. You may receive a lower rate without moving lenders, although an internal product switch can still have costs or changed conditions.
Ask what rate the lender can offer on your current balance and remaining term, whether it changes your fees or features, and when it takes effect. Get the answer in writing.
Then put that offer beside the refinance quote. A smaller rate reduction with few switching costs can be competitive over a shorter period. Over a longer period, a bigger rate difference may matter more. Use the figures rather than assuming staying or leaving will win.
Keep cashback separate from the regular savings
If an offer includes cashback, confirm eligibility, payment timing and any repayment conditions in writing. Only count it when those conditions fit your situation. A one-off payment does not lower the ongoing rate or make a higher annual fee disappear.
CommBank’s refinancing discussion also cautions that higher repayments or fees can use up an upfront cashback benefit. Compare the offer over the period you expect to keep it, and check whether the switching bill is due before the cashback arrives.
Ask for a comparison you can act on
Bring the two written offers together before signing. You should be able to identify:
- The full starting cost: confirmed fees, LMI if applicable, and which amounts would be borrowed.
- The ongoing difference: repayments and fees on the same balance, remaining term and repayment type.
- The useful features: what you would keep, gain or lose, including offset access and extra-repayment rules.
- The time comparison: when costs are recovered and what the position looks like at a realistic sale or review date.
If a cost is still marked “to be confirmed”, treat the savings estimate as unfinished. Ask the lender or broker to update it. The aim is a loan whose costs and repayment path make sense for you, with enough detail to understand why.
This article provides general information, not a personal loan recommendation. Fees, eligibility and outcomes depend on your loan and circumstances. Seek appropriate lending, financial, legal or tax advice where needed.
