How to Refinance Your Australian Home Loan and Save on Interest

Key Takeaway

Refinancing your Australian home loan means switching from your current loan to a new one, either with your existing lender or a different lender, typically to secure a lower interest rate, reduce monthly repayments, or access equity. A difference of just 0.5 per cent on a A$500,000 loan can save you over A$50,000 in interest over 25 years. Before refinancing, compare the comparison rate (which includes most fees and charges), check for break costs if you are on a fixed-rate loan, and confirm that the savings outweigh the application and settlement costs.

What Refinancing Means

Refinancing is the process of replacing your existing home loan with a new one. You might refinance with your current lender (an internal refinance) or switch to a different lender (an external refinance). The new loan pays out the balance of your old loan, and you start making repayments under the new loan terms.

Most Australian borrowers refinance to secure a lower interest rate, but refinancing can also let you access equity for renovations or investment, switch from a variable-rate loan to a fixed-rate loan (or vice versa), or consolidate debt. According to ASIC MoneySmart, refinancing can save you thousands of dollars over the life of your loan if the new rate is lower and the costs are manageable.

Why Refinancing Matters

Interest rates move with the RBA cash rate and lender policy changes, and your loan’s rate might no longer be competitive. If you took out your loan when rates were higher, or if your lender has not passed on recent cash rate cuts, you could be paying significantly more than current market rates.

For example, on a A$400,000 loan over 25 years, a 0.5 per cent rate reduction (from 6.0 per cent to 5.5 per cent) cuts your monthly repayment by about A$125 and saves roughly A$37,500 in total interest. On a larger loan or over a longer term, the savings multiply.

Refinancing also matters if your circumstances have changed. You might want to access equity that has built up in your property, switch to a loan with an offset account or redraw facility, or move from interest-only repayments to principal and interest to pay down the loan faster.

How Refinancing Works in Australia

The refinancing process resembles applying for a new home loan. Your new lender assesses your income, expenses, credit history, and the property’s current value to determine serviceability and the loan-to-value ratio (LVR). If your LVR is above 80 per cent, you may need to pay lenders mortgage insurance (LMI) again, which can add thousands of dollars to the cost.

Once approved, the new lender pays out your existing loan, and you start making repayments under the new terms. The process typically takes three to six weeks from application to settlement.

Key Costs and Considerations

Refinancing is not free. Common costs include:

Discharge fee: charged by your current lender to close your existing loan (typically A$300 to A$500).
Application and settlement fees: charged by the new lender (often A$600 to A$1,000).
Valuation fee: the new lender may require a property valuation (around A$200 to A$400).
Break costs: if you are on a fixed-rate loan and refinance before the fixed term ends, you may face substantial break costs (sometimes thousands of dollars). Fixed-rate break costs depend on the difference between your locked rate and current market rates, and the time remaining on your fixed term.

Before refinancing, calculate whether the interest savings outweigh these costs. As a general rule, if you will recover the refinancing costs within 12 to 24 months through lower repayments, refinancing is likely worthwhile.

Comparison Rate and Rate Shopping

When comparing refinance offers, look at the comparison rate, not just the advertised interest rate. The comparison rate includes the interest rate plus most ongoing fees and charges, and is a more accurate measure of the loan’s true cost. Australian lenders are required to display the comparison rate in advertising.

Rates and fees vary widely between lenders, and the comparison rate helps you compare apples to apples. Be aware that the comparison rate is based on a standard loan amount (typically A$150,000) and a 25-year term, so if your loan differs significantly, the comparison rate is only an approximation.

Australian Loan Products and Features

When refinancing, consider the features that matter to your situation:

Variable versus fixed: variable-rate loans move with the market and may offer offset accounts and redraw facilities. Fixed-rate loans lock in your rate for a set period (commonly one to five years) but often restrict extra repayments and may charge break costs if you exit early.
Offset account: a transaction account linked to your loan. The balance in the offset account reduces the loan balance on which interest is calculated, lowering your interest bill without losing access to your savings.
Redraw facility: lets you withdraw extra repayments you have made, providing flexibility if you need cash later.
Split loan: combines a variable portion and a fixed portion in the one loan, letting you hedge against rate movements while keeping some flexibility.

When to Refinance

Refinancing makes sense when:

You can secure a rate at least 0.5 per cent lower than your current rate, and the savings exceed the refinancing costs.
You have built up significant equity and want to access it for renovations, investment, or debt consolidation.
Your current loan lacks features you now need (such as an offset account or the ability to make extra repayments).
You are coming to the end of a fixed-rate period and want to lock in a new fixed rate or switch to variable.
Your financial situation has improved, and you can refinance to a loan with a lower rate or better terms.

Do not refinance if the break costs on your current fixed loan are high, if you are close to paying off your loan (the interest savings on a small remaining balance are minimal), or if your LVR would require LMI on the new loan and add thousands to the cost.

Regulatory and Practical Context

The financial principles behind refinancing, including the time value of money and the impact of interest compounding, are covered in foundational texts such as Principles of Finance (OpenStax, 2022), which explains how small rate differences compound into large savings over time.

In Australia, the RBA cash rate influences lender funding costs and, in turn, variable home loan rates. According to the Reserve Bank of Australia, cash rate changes typically flow through to variable rates within weeks, though lenders are not required to pass on the full change. Fixed rates, by contrast, are influenced by longer-term wholesale funding costs and market expectations.

Before you refinance, check your current loan contract for any clauses that affect early repayment or discharge, verify the total costs with the new lender in writing, and confirm that the new loan’s features match your needs. Consider obtaining pre-approval (also called conditional approval) to lock in a rate and speed up the final approval once you formally apply.

Conclusion

Refinancing your Australian home loan can deliver substantial interest savings, better loan features, and improved financial flexibility. The key is to compare the comparison rate across lenders, account for all refinancing costs (including discharge fees, application fees, and any break costs on fixed loans), and confirm that the net savings justify the switch. Rates and eligibility vary by lender, product, and your personal circumstances, so verify current terms with a licensed lender or mortgage broker before you decide.

General advice warning: This information is general in nature and does not consider your objectives, financial situation, or needs. You should consider obtaining personal advice from a licensed mortgage broker or financial adviser before acting on it. This article is not personalised financial, lending, or legal advice. Advertised interest rates differ from the comparison rate, which includes most fees and charges. Rates are current as of October 2026 and change frequently. Verify current terms, eligibility, and break costs with a licensed lender or broker before refinancing. Refinancing costs, LMI, and break costs vary by lender, product, and your circumstances.