Refinancing a home loan: when it pays, what it costs, and when to stay put.

Start by reading the loan you have

Before comparing anything, know four things about your current loan: the rate you actually pay after any discount, the remaining term, the balance and the structure. The rate is on your statement or in your lender’s app, and it is often not the rate you remember agreeing to, because discounts lapse and variable rates move. Extending the term can lower repayments while increasing total interest; compare the actual terms and costs of both loans. The structure matters because an offset balance or a fixed portion changes what moving costs.

Then ask your lender to reprice. Ask the existing lender whether it can improve the current loan, then compare any offer with the alternatives. Ask the lender about its repricing process and whether any fee applies. Whatever it produces is the benchmark the refinance has to beat.

What moving actually costs

The costs are specific and mostly knowable in advance. Check the lender’s discharge fee, if any, and applicable mortgage discharge registration fees. If any part of the loan is fixed, a break cost may apply; it can be nil, small or many thousands depending on how rates have moved since you fixed and how long remains, and only the lender can quote the actual figure. The new lender may charge application, valuation and settlement fees, and the state charges a registration fee for the new mortgage. Legal or settlement agent costs sit on top.

Lenders’ mortgage insurance is the cost people forget. It is paid once, to the insurer of the lender you had, and it does not move with you. If the new loan is above 80% of the property’s value, the new lender may require insurance again in full. Refinancing at a high loan to value ratio therefore needs a saving large enough to absorb a second premium, or a valuation that puts the loan under the line.

The saving test, done properly

The correct comparison is the total you would pay on each loan over the period you expect to hold it, after all costs, not the difference between two headline rates. A rate difference that looks meaningful can be worth less than the fees over three years and worth a great deal over fifteen. The refinance savings tool on this site does this working, including break-even in months, on the figures you enter. It does not know your rate, so it does not guess one; enter the rate from your statement and the rate you have been offered, with its comparison rate beside it.

A comparison rate combines interest and most fees using specified assumptions. Check the stated loan amount, term and exclusions. On a large loan the fixed fees weigh less than the comparison rate implies, and features such as offset are not captured at all. Read the comparison rate as a check on fees, then do the calculation on your own numbers.

Cashback offers and honeymoon rates

A cashback is real money and it belongs in the calculation, on the cost side as a negative. The question is what you pay for it. Assess any cashback against the loan’s total costs and offer conditions over the expected holding period. The test is the same: total cost over the holding period, with the cashback deducted. An introductory or honeymoon rate that reverts after a period is assessed the same way, with the revert rate doing most of the work in the total.

When a fixed term is ending

When the fixed period ends, the loan changes to the terms specified in the contract unless a different arrangement is agreed. Compare the contractual revert terms with the alternatives available to you. The choices are to accept the revert rate, ask the lender to reprice, fix again, split, or refinance. Begin reviewing before the fixed period ends. Processing time and any option to lock a new fixed rate depend on the lender and application. The fixed rate ending tool on this site shows what the revert costs against each alternative on your balance.

Consolidating other debts into the home loan

Consolidation may reduce repayments but can increase total costs by extending repayment. Moving unsecured debts into a home loan also puts the home at risk if repayments are not met. It also turns a three or five year debt into a thirty year one unless the extra amount is paid down deliberately. Done with a plan, meaning the consolidated portion is repaid on its original timetable or held as a separate split with a short term, it can save real money. Done without one, it usually costs more in total. Lenders also look at the reason for the consolidation and at whether the cards are then closed.

Four cases where staying put is the right answer

Refinancing does not pay when the break cost on a fixed portion exceeds the saving over the time you will hold the loan. Above 80% of value, where a new lenders’ mortgage insurance premium would apply, it pays only if the total saving over the period you expect to keep the loan clears that premium together with the discharge, application, valuation and any break costs; a lower repayment on its own does not establish that switching is worthwhile. It does not pay when the saving after all costs does not clear the cost with room to spare, allowing for the chance that rates and your circumstances move. A small difference may or may not justify refinancing, depending on the total costs, balance, holding period and required features. If the review lands in one of these cases, the written position says so, and that is the end of it until something changes.