When Is the Best Time to Refinance Your Home Loan?

Refinancing your home loan — replacing your existing mortgage with a new one, often from a different lender — is one of the most effective ways to reduce your borrowing costs. But timing your refinance correctly can mean the difference between saving tens of thousands of dollars and barely breaking even after fees. In this guide, we explore the key triggers that signal it is time to refinance, the costs involved, and how to ensure the switch is worthwhile.

Sign 1: Your Fixed Rate Is About to Expire

If you locked in a fixed rate during the low-rate period of 2020-2022, there is a strong chance you are now rolling onto your lender's standard variable rate, which could be significantly higher than the competitive rates available on the market. Many borrowers who fixed at rates below 3 per cent are now facing variable rates above 6 per cent. When your fixed rate expires, your lender will automatically move you to their standard variable rate, which is typically the highest rate they offer. This is the most common trigger for refinancing, and for good reason — switching to a competitive variable rate or a new fixed rate from another lender can reduce your rate by 0.50 to 1.50 per cent. On a $500,000 loan balance, a 1 per cent rate reduction saves approximately $280 per month, or $3,360 per year. Over the remaining term of your loan, the total savings can be substantial.

Sign 2: You Are Paying Above the Market Rate

Even if your fixed rate has not expired, you may be paying more than necessary on a variable rate. Lenders frequently reserve their lowest rates for new customers, while existing customers gradually drift onto higher rates through a practice known as the loyalty tax or back-book pricing. If you have not reviewed your rate in the past 12 months, check what comparable lenders are offering for your loan amount and loan-to-value ratio (LVR). If you can get a rate at least 0.25 to 0.50 per cent lower elsewhere, refinancing may be worthwhile — even after accounting for costs. The simplest first step is to call your current lender and ask them to match a competitive offer. Many lenders have retention teams authorised to offer significant rate discounts to keep your business. If they cannot match the market, refinancing becomes the logical next step.

Sign 3: Your Property Has Increased in Value

If your property has grown in value since you purchased it, your loan-to-value ratio (LVR) has improved, which could unlock better rates. Lenders price their home loans in LVR tiers, with the best rates typically available at 60 per cent LVR or below and progressively higher rates as LVR increases. For example, if you purchased a property for $700,000 with a $560,000 loan (80 per cent LVR) and the property is now worth $850,000 with a remaining balance of $520,000, your LVR has dropped to approximately 61 per cent. This could qualify you for a significantly lower rate with a new lender.

Sign 4: Your Financial Situation Has Improved

If your income has increased, your credit score has improved, or your debts have decreased since you took out your original loan, you may now qualify for better loan products that were not available to you previously. Some lenders offer premium rates for borrowers with high incomes, strong credit histories, or significant equity. Similarly, if you have paid off other debts such as car loans or credit cards, your debt-to-income ratio has improved, making you a lower-risk borrower in the eyes of lenders.

Sign 5: You Need to Access Equity

Refinancing can also be a strategic tool for accessing equity in your property. If you need funds for a renovation, an investment property deposit, or debt consolidation, refinancing to a new loan with a cash-out component allows you to access your equity while potentially securing a better rate at the same time. However, it is important to be disciplined about how you use accessed equity. Rolling short-term debts like credit cards into a 30-year mortgage can reduce your monthly payments but cost you more in total interest over the long run.

When Refinancing May Not Make Sense

Refinancing is not always the right move. Consider the following scenarios where staying put may be better. If you have a small loan balance (under $200,000), the dollar savings from a lower rate may not justify the refinancing costs. On a $150,000 balance, a 0.50 per cent rate reduction saves about $63 per month. If refinancing costs are $2,000 to $3,000, it takes three to four years just to break even. If you are close to the end of your loan term, the interest savings from refinancing are minimal because most of your repayments are already going towards principal rather than interest. If your LVR is above 80 per cent, you may need to pay Lenders Mortgage Insurance (LMI) with the new lender, which could cost thousands and wipe out any rate savings. If you have recently changed jobs, are on probation, or have irregular income, you may face difficulty meeting the new lender's serviceability criteria.

The Costs of Refinancing

Common refinancing costs include a discharge fee from your current lender (typically $150 to $400), a settlement or establishment fee from the new lender ($0 to $600, often waived as a promotional offer), government registration fees for the new mortgage ($100 to $300 depending on the state), and potentially a valuation fee ($0 to $400, though most lenders now use automated valuations at no cost). In total, refinancing costs are typically $300 to $1,000 for a straightforward refinance. Many lenders offer cashback deals of $2,000 to $4,000 to attract refinancers, which more than covers the switching costs. However, be cautious about choosing a lender purely based on a cashback offer — the ongoing rate is far more important than a one-time payment.

How a Broker Can Help

A finance broker can compare offers from dozens of lenders, negotiate the best rate for your specific situation, manage the paperwork and settlement process, and ensure you are not caught out by hidden fees or unfavourable loan terms. The broker's service is typically free to the borrower, as they are paid a commission by the new lender. This makes using a broker one of the most efficient ways to refinance. If you think it might be time to refinance, get in touch with our team for a free, no-obligation comparison. We can assess your current loan, compare it against market rates, and advise whether switching would genuinely save you money.