The case for refinancing changes with each rate move. Six months ago, with the cash rate near 3.60 per cent and the gap between the cheapest and average variable rate compressed to 0.30 per cent, the break-even maths often pointed to "stay put". The May 2026 hike to 4.35 per cent has changed that. The gap between the cheapest available variable rates and the major-bank average has widened to 0.50 to 0.65 per cent. Cashback offers have reappeared as lenders compete for low-LVR refinancers. The break-even threshold for switching has moved.
How does the break-even formula actually work?
Refinance break-even is the number of months it takes for the monthly saving on the new loan to repay the switching costs. The formula is: total switching costs divided by monthly saving. Monthly saving is the difference between your current monthly repayment and the new monthly repayment. Switching costs typically include the discharge fee from the existing lender ($150 to $400), government registration of the new mortgage ($150 to $300), valuation if not waived ($0 to $600), and any establishment fee on the new loan ($0 to $895). Many refinances also attract a cashback from the new lender, which reduces the net switching cost.
A practical rule: under 18 months break-even is usually a yes. Between 18 and 36 months, it depends on whether you have other reasons to switch (better offset, simpler product, better service). Over 36 months, usually no.
Worked example at 4.35%
Take a borrower with a $600,000 25-year owner-occupier loan, currently on a variable rate of 6.85 per cent (a typical major-bank rate after the May hike). The monthly repayment is about $4,170. The cheapest comparable variable rate available to a low-LVR refinance applicant is 6.45 per cent, ten basis points above the cheapest "honeymoon" promotion in the market. Monthly repayment at 6.45 per cent is about $4,015. Saving: $155 a month, $1,860 a year.
Switching costs in this scenario: $350 discharge from the existing lender, $200 mortgage registration, $0 valuation (waived for low-LVR refinances), $0 establishment fee (waived in the cashback offer). Total: $550. The new lender is offering a $3,000 cashback for refinances above $500,000. Net switching cost: minus $2,450 (i.e. you receive $2,450 net to switch). Break-even is immediate, with $2,450 of net cashback to start.
In a 2026 cashback environment, "break-even" often means "negative". The cashback exceeds the switching costs and the saving compounds from month one.
What is the catch with cashbacks?
Three things to read in writing before you sign. First, claw-back periods. Most cashback offers require you to keep the new loan with the lender for 24 to 36 months. Switch back inside that window and the cashback is repayable in full. Second, the rate offered alongside the cashback. Some lenders offer a slightly higher headline rate on cashback products than on their standard product; the cashback is real but the rate erosion can offset it. Third, the eligibility criteria. Cashbacks often require new loan amount above a threshold ($250,000, $500,000, or $750,000 are common) and a maximum LVR below 80 per cent.
The key calculation is total cost over the claw-back period: minimum monthly repayments at the new rate, less the cashback received, less any discount the existing lender will match if you ask. If the existing lender will match the new rate within 0.10 per cent, the cashback is the only money on the table. If the existing lender will not match, the rate saving plus the cashback is the relevant comparison.
How to run the maths in 30 minutes
- Phone your current lender, ask for the rate they would offer a new customer at your LVR on the same product. Write the number down.
- Use our refinance calculator with that number as your "current rate" and the cheapest comparable variable rate as your "new rate". Note the monthly saving.
- Add up switching costs for the new lender (discharge, registration, valuation, establishment), subtract any cashback. Note the net cost.
- Divide net cost by monthly saving. Under 18 months, it is usually a switch. Over 36 months, it usually is not.
The break-even maths is the right starting point for the decision. The right ending point is whether the new lender's product structure (offset, redraw, extra repayments, fixed split availability, service model) suits the way you actually use a mortgage. A 0.40 per cent rate saving with no offset is sometimes worse than the same rate with offset, depending on the balance you carry in transaction accounts.