Refinancing gets pitched as an easy win: a lower rate and a lower repayment, nothing more to it. The real answer comes down to numbers borrowers rarely see before they sign. Get it wrong, and you can end up worse off than if you'd stayed put.
LBK works it out from the numbers first. The costs and mistakes below come up again and again in this conversation.
The Problem With Chasing a Tiny Rate Saving
Refinancing for a saving of 0.05% or 0.1% in interest happens more often than you'd think. On the surface, it looks like a win. Factor in what switching actually costs, and that win can disappear fast. You can end up no better off, sometimes even worse off, for years.
Take a loan around $650,000. A 0.1% saving might free up somewhere around $50 a month. Switching costs, done properly, typically run $1,000 to $2,000.
Work out how long it takes to recover that from a $50-a-month saving. Already, the "win" starts to look a lot smaller. This especially applies if you're likely to sell or refinance again within a few years.
This doesn't make refinancing a bad idea. It just means the rate on its own isn't the full picture. A good broker will show you the true cost before you agree to anything.
What Refinancing Actually Costs
Four line items show up in almost every refinance, and they're worth knowing before you compare rates. Each one is broken down below.
Mortgage Registration Fee
This is a government charge for registering the change of lender on the title. It's non-negotiable and unavoidable, and applies no matter who you refinance with. The exact figure depends on the state, and sits alongside the other switching costs below.
Discharge Fee
Your current bank charges this to close out the existing loan. It varies by lender, but a figure around $350 is a reasonable average to plan around. Some charge more, some less, which is why it pays to ask upfront.
New Lender Fees
Some banks charge an application or settlement fee to bring a loan on. Others don't charge anything at all. Confirm this either way before you commit.
Legal Transfer Costs
PEXA or settlement fees cover the actual transfer of the loan between lenders.
Add those up, and you'll usually land somewhere between $1,000 and $2,000 in total switching costs, sometimes more. Check the ongoing annual fee on the new loan too, against what you're currently paying. A lower headline rate can come with a higher annual fee, closing some of that gap.
When It Genuinely Is Worth It
Lenders can be aggressive on pricing, particularly for borrowers with a strong loan-to-value ratio. This means a smaller loan compared to what the property's worth.
Your equity position might have improved since you took out the loan. It could be from paying it down, or from the property's value moving. Either way, you may now qualify for sharper pricing than when you first borrowed.
Before you commit to switching lenders, take the competing offer back to your current bank. Ask them to match it.
Banks will often reprice an existing client to keep the loan rather than lose it. If they agree, that avoids switching costs altogether. If they don't match it, or won't move enough, it's time to look at a genuine refinance.
The Valuation Trap Borrowers Don't Expect
Desktop valuations for the same property can vary enormously between banks, which catches borrowers off guard. The gap can run from $50,000 to $120,000 or more, and no one inspects the property in person.
This matters for two reasons. Say you're refinancing to access equity, cash out for renovations, or consolidate other debt. The valuation your new lender gives directly shapes what you can do.
A conservative valuation from one bank can make a refinance look pointless. A stronger one from a different lender can open up options you thought were off the table.
Second, bank appetite on valuations changes almost as often as appetite on interest rates. The two don't necessarily move together.
A lender that was strong on valuations a while back might not be anymore. Another that wasn't competitive on rate could now be generous on valuation.
If you're relying on a single valuation, you're really relying on one bank's mood for the week. It's not an objective figure.
A Debt Consolidation Trap Worth Knowing About
Refinancing sometimes comes with an offer to roll other debts into the new home loan, think a car loan or a personal loan. It's worth understanding the effect before agreeing to it.
A typical car or personal loan runs for about seven years, but roll that balance into a 30-year home loan, and it's now repaid over 30 years instead of seven. The rate drops, but the timeframe stretches out much further.
The total interest paid can end up higher than if the debt had stayed where it was. Consolidating isn't wrong. It's a common reason people refinance, particularly when cash flow is tight, and one lower repayment can bring real breathing room.
The fix is being deliberate about it. Consolidate for the rate, then keep repaying that portion on close to its original timeframe, rather than letting it drift out to 30 years by default.
A Case Study In Getting The Structure Right
A mother, her daughter and the daughter's partner came to LBK wanting to buy an owner-occupied home together, and they'd already been told no twice. Their bank said the deposit wasn't enough.
A previous broker told them the same thing. They were also told the First Home Guarantee only stretches to two applicants, meaning any guarantor would need to be a parent.
The family hadn't realised the mother's sister owned an investment property worth around $2.2 million, with equity sitting unused. A previous lender had already tied that property to other lending, without the sister or husband being told. It's a good reminder to always ask exactly what security is being used, and how.
Once that was untangled and structured properly, they bought a $950,000 home in Southeast Queensland, with a loan of $985,000 covering the purchase price plus stamp duty, transfer fee, mortgage registration and solicitor costs. Combined income across the three applicants sat well over $300,000.
Affording the repayments wasn't the issue; access to the right structure and the right information was. The same principle applies to refinancing.
The rate is rarely the whole story. What matters is the structure underneath it, and whether you can see the full picture before you commit.
The Bottom Line
Refinancing can be worth it, sometimes significantly. The mistake is treating the headline rate as the only number that matters. Before you switch, get clear on:
- The true switching cost, in writing, not just an estimate
- Whether your current bank will match the offer before you move
- What valuation the new lender is likely to give, especially if you need equity out
- How the term is structured if debt consolidation is part of the deal
- The ongoing annual fee, not just the headline rate
A refinance done properly can put you ahead for years. Chase a headline rate alone, and you can end up no better off than when you started.
Frequently Asked Questions
How much does it typically cost to refinance a home loan in Australia?
Typically $1,000 to $2,000 in total. This covers the mortgage registration fee, the discharge fee (often around $350), and any new lender fees. Legal or settlement transfer costs usually add $1,000 to $1,500 on top. Exact figures vary by lender.
Is it worth refinancing for a small interest rate saving?
It depends on your loan size and how long you plan to stay in it. A saving of 0.05% to 0.1% can take years to recover the switching costs on a typical loan. Ask for the actual break-even timeframe before you decide.
Should I ask my current bank to match a better offer before refinancing?
Yes, generally. Banks often move on price to hold onto a client, rather than lose the business to a competitor. If they agree to match or beat a competing offer, that can avoid switching costs entirely.
Do I need a new valuation to refinance?
Usually, yes. A refinance typically involves a fresh valuation from the new lender. Valuations can vary significantly from bank to bank. This matters particularly if you're also trying to access equity as part of the refinance.
Is consolidating other debt into my home loan during a refinance a good idea?
It can genuinely help with cash flow. Just confirm the repayment term on the consolidated portion. Otherwise it can default to the full 30-year home loan term, increasing the total interest you pay.
If refinancing might make sense for you, it's worth talking through the real numbers. Book a 15-minute call with Lachlan to see what it would look like for you.
About LBK Lending: LBK Lending is a Brisbane-based mortgage broking firm working with clients across Australia, holding a 5-star rating from more than 250 Google reviews. Lachlan McKean is the broker behind the business. He specialises in first-home buyer and guarantor lending alongside investor and trust structures, and works with lenders that count overtime, allowances and shift loadings.
General information only. This article doesn't take into account your personal objectives, financial situation or needs, and isn't tax advice. Consider your own circumstances and seek advice specific to your situation before making a decision. Case study details are de-identified, and figures are illustrative. A guarantor arrangement remains the borrower's loan in full; lenders require guarantors to seek independent legal and financial advice before proceeding. LBK Lending. Credit Representative 527175 authorised under Australian Credit Licence 389328. Subject to lender terms, conditions and eligibility.
