What Does It Cost to Refinance a Home Loan?

Many homeowners assume refinancing their home loan is expensive and that the costs involved will outweigh any potential savings.

In reality, refinancing costs are often relatively modest, but they still need to be considered before deciding whether switching lenders makes financial sense.

Depending on your current lender, new lender and loan structure, there may be discharge fees, government charges, application costs or other expenses involved.

Understanding these costs, and how long it may take to recover them through lower repayments or a better loan structure, can help you decide whether refinancing is actually worthwhile.

Home Loan Review Series

Regularly reviewing your home loan can help you save money, improve your financial flexibility and ensure your loan continues to meet your needs.

Available guides:

✅ Is It Worth Refinancing My Home Loan?

✅ What Does It Cost to Refinance a Home Loan?

✅ How Long Does It Take to Refinance?

🔜 Can I Refinance to Access Equity?

🔜 Should I Stay With My Current Bank or Switch?

🔜 Home Loan Review (Complete Guide)

What Costs Are Involved in Refinancing?

The exact cost of refinancing varies depending on the lenders involved and your individual circumstances.

Some of the common costs can include:

• Existing lender discharge fees
• Government registration and discharge fees
• New lender application or settlement fees
• Property valuation fees
• Package or annual fees
• Fixed-rate break costs, where applicable
• Lenders Mortgage Insurance in some circumstances

Not every refinance will involve all of these costs.

Before proceeding, it’s important to understand exactly what you’ll pay to leave your existing lender and establish the new loan.

Existing Lender Discharge Fees

When you refinance to another lender, your existing lender needs to discharge its mortgage over your property.

Many lenders charge a discharge or settlement fee for this process.

The amount varies between lenders, so it’s worth checking your current loan documents or requesting an indicative payout figure before refinancing.

Government Fees

There are generally government charges associated with removing your existing lender’s mortgage and registering the new lender’s mortgage over the property.

These fees vary between states and territories and can change over time.

While they are generally not the largest refinancing expense, they still need to be included when calculating the overall cost of switching.

New Lender Fees

Depending on the lender and product selected, your new loan may have costs such as:

• Application fees
• Settlement fees
• Valuation fees
• Annual package fees

Some lenders charge very few upfront fees, while others may have several.

This is why comparing home loans based solely on the advertised interest rate can be misleading.

What If You’re Currently on a Fixed Rate?

This is an important one.

If you’re refinancing before your fixed-rate period ends, your existing lender may charge a break cost.

The amount can vary considerably depending on factors including:

• Your remaining fixed term
• Your loan balance
• Your existing fixed interest rate
• Changes in wholesale interest rates

In some situations, break costs can be substantial.

If you have a fixed-rate home loan, you should understand the potential break cost before making any decision to refinance.

Could You Have to Pay Lenders Mortgage Insurance Again?

Potentially.

Lenders Mortgage Insurance, commonly known as LMI, may apply when borrowing above certain loan-to-value ratios.

If you originally paid LMI, that doesn’t necessarily transfer to your new lender.

Your current property value and remaining loan balance therefore become particularly important when considering refinancing.

If your property has increased in value or you’ve reduced your loan balance, your LVR may now be lower than when you originally purchased the property.

How Do You Know Whether the Cost Is Worth It?

This is where looking at the interest rate alone isn’t enough.

You need to compare the cost of refinancing against the expected benefit.

For example, imagine refinancing costs approximately $800, but the new loan reduces your repayments by around $150 per month.

At that level of saving, it would take a little over five months to recover the initial refinancing costs.

After that point, the ongoing repayment saving starts putting you ahead, assuming the rates and other costs remain unchanged.

This is often referred to as the break-even point.

A Lower Repayment Doesn’t Always Mean You’re Saving Money

This is an important distinction.

If you’ve already been paying your home loan for several years and refinance the remaining balance back over a fresh 30-year term, your required monthly repayment may fall.

But that doesn’t necessarily mean you’ll pay less overall.

Extending the loan term can result in significantly more interest being paid over the life of the loan.

For example, if you have 22 years remaining on your existing mortgage, comparing it with a new 30-year loan based purely on the monthly repayment isn’t a fair comparison.

Where appropriate, maintaining your existing remaining loan term can provide a much clearer picture of the genuine refinancing benefit.

What About Cashback Offers?

From time to time, lenders may offer cashback or other incentives to borrowers who refinance.

These offers can help offset some of the costs of switching, but they shouldn’t be the main reason you choose a lender.

A cashback may look attractive upfront, but a higher interest rate or unsuitable loan structure could cost considerably more over time.

The loan itself still needs to make sense once the incentive is removed from the equation.

When Might Refinancing Not Be Worth the Cost?

There are situations where refinancing may not make financial sense.

For example:

• You’re already receiving a competitive interest rate
• The potential savings are relatively small
• You have significant fixed-rate break costs
• You’re planning to sell the property shortly
• Refinancing would trigger substantial LMI
• Your existing lender is prepared to offer competitive pricing
• The new loan would extend your debt unnecessarily

Sometimes the best outcome from a home loan review is actually not refinancing.

Should You Ask Your Current Bank for a Better Rate First?

Often, yes.

Before moving your home loan, it can be worth asking your existing lender whether they can improve your current interest rate.

Depending on the lender, this may allow you to secure a better deal without going through a full refinance.

However, it’s still worth understanding what other lenders are offering so you have something meaningful to compare against.

Why Work With a Mortgage Broker?

Comparing refinancing options involves more than finding the lowest advertised rate.

A mortgage broker can help you:

• Review your current home loan
• Compare alternative lenders
• Identify the costs involved in switching
• Calculate the potential repayment savings
• Consider the break-even point
• Compare loan features and structures
• Determine whether refinancing actually leaves you better off

The objective shouldn’t be refinancing for the sake of refinancing.

It should be making sure the numbers genuinely stack up.