By Paul Feeney, Founder and Chief Executive Officer, Otivo
Refinancing has a reputation problem in both directions. Half of borrowers treat it as a hassle reserved for other people, and quietly overpay for years — the ACCC's Home Loan Price Inquiry found loans over three years old averaged around 58 basis points above new-customer pricing as at its 2020 report. The other half treat it as free money and forget that switching carries real costs which can eat the savings whole. The truth sits in three questions, and they can be answered in an evening — is the rate uncompetitive, what would switching cost, and how long will the loan stick around to repay that cost?
Refinancing means replacing an existing home loan with a new one, with the same or a different lender, typically to secure a lower rate or better features. Whether it pays depends on three factors — the gap between the current rate and available rates, the switching costs including discharge and application fees, and how long the borrower will hold the new loan. ASIC's MoneySmart outlines the process and costs.
Question one — is the current rate competitive?
The benchmark isn't last year's rate, it's today's new-customer pricing on an equivalent loan — same loan-to-value ratio, same features, same borrower profile. Checking the current lender's own advertised offers is the fastest tell, since a gap between what they charge existing customers and offer new ones is the loyalty tax in its purest form, a pattern Otivo has covered in detail. INTERNAL-LINK-PLACEHOLDER — link loyalty tax article when published.
Compare using comparison rates rather than headline rates, because comparison rates fold most fees into a single figure. And if the gap is real, the first move usually isn't refinancing at all — it's a rate review call asking the current lender to match, which costs nothing and resolves a surprising share of cases. Refinancing is the escalation when the answer is no.
Question two — what would switching actually cost?
The costs are specific and knowable, which makes this the easiest question of the three — it's a list, not a judgement.
Discharge fees on the old loan, typically a few hundred dollars. Application, valuation, and settlement fees on the new one — sometimes waived in offers, sometimes not. Government registration fees for swapping the mortgage over. And the significant conditional two — break costs if any portion of the current loan is fixed, which can run to thousands and deserve a written quote from the lender before anything is signed, and lenders mortgage insurance if the new loan exceeds 80 percent of the property's value, which can be large enough to sink the whole case on its own.
Totalled honestly, switching costs commonly land between several hundred and a couple of thousand dollars for a straightforward variable-to-variable move — and dramatically more when break costs or LMI enter. The point of the list is a single number to carry into question three.
Question three — how long will the savings run?
Savings need time to outrun costs, so the arithmetic is a payback period. Annual saving equals the rate gap times the balance — half a percent on $600,000 is $3,000 a year. Divide the switching costs by that, and the answer is the break-even point in months. Costs of $1,200 against $3,000 a year break even in under five months; the same costs against a $150,000 balance and a slim rate gap might take years.
Then the honest part — how long will this loan actually exist? Plans to sell, upgrade, or substantially restructure inside the payback window turn a refinance into a loss dressed as a saving. Borrowers staying put for years past break-even capture everything after it as pure gain, and the larger the balance, the faster the line is crossed.
What do the three answers add up to?
A decision that makes itself. Uncompetitive rate, modest costs, long horizon — refinance, or let the threat of it power a rate-match call. Competitive rate already — stop, and diarise a check for next year. Uncompetitive rate but a short horizon or heavy break costs — the rate review call captures most of the benefit for none of the cost, which is why it's the first move in almost every scenario.
One refinement worth adding — a refinance is also the natural moment to reconsider structure, not just price. Loan term, offset versus redraw, fixed portions, repayment settings — the whole architecture is on the table once. Resetting a loan to a fresh 30-year term, for instance, can lower repayments while increasing total interest, a trade-off worth making deliberately rather than by default. How the loan fits the household's wider position — other debts, income, expenses — is what Otivo's debt module assesses, with regulated advice under AFSL and Australian Credit Licence No. 485665. INTERNAL-LINK-PLACEHOLDER — confirm debt module URL.
Frequently asked questions
Does refinancing affect a credit score?
A refinance application is a credit enquiry and appears on the credit report, as any credit application does. A single application has modest effect; a scatter of applications across many lenders in quick succession reads worse, which is why borrowers typically research first and apply once.
How often can a home loan be refinanced?
There's no legal limit, but each switch re-incurs costs and enquiries, so the practical rhythm is refinancing when the three-question test clearly passes — for many borrowers that's every few years, alongside annual rate-review calls in between.
Can you refinance with the same lender?
Switching products with the existing lender — an internal refinance — avoids discharge and registration costs and can capture much of the benefit, which is why the rate review call comes first. The full external refinance is the tool for when the current lender won't compete.
Sources
- ASIC MoneySmart — Switching home loans. moneysmart.gov.au/home-loans/switching-home-loans
- ACCC — Home Loan Price Inquiry, final report, 2020. accc.gov.au/inquiries-and-consultations/finalised-inquiries/home-loan-price-inquiry-2019-20
- ASIC MoneySmart — Mortgage calculator. moneysmart.gov.au/home-loans/mortgage-calculator
Disclaimer
The information in this communication is current as at July 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.