Key takeaways
- Refinancing costs money — the saving has to beat the switching costs to be worth it.
- Fixed-rate break costs can wipe out any benefit; always get the figure first.
- Refinancing to a fresh 30-year term can raise your total interest even at a lower rate.
- If your equity is thin, a switch can trigger new LMI — an easily missed cost.
Refinancing has a great reputation, and often deserves it — our main refinancing guide covers when it genuinely pays. But “rates are lower now” isn’t a plan, and a headline rate isn’t a saving until it survives the costs of switching. These are the situations where the honest answer is: stay put, at least for now.
You’re locked into a fixed rate
Leaving a fixed loan early can trigger a break cost — the lender’s compensation for the interest it expected to earn. If rates have risen since you fixed, that figure can be enormous and instantly erase the benefit of a lower rate elsewhere. Never refinance out of a fixed loan without asking your current lender for the break cost in writing first. (Our fixed vs variable guide explains why.)
The switching costs outweigh the saving
Refinancing carries real costs: a discharge fee from your old lender, application and valuation fees from the new one, mortgage registration changes, and possibly fresh LMI. On a small loan balance, or when the rate gap is slim, these can add up to more than a year or two of savings. The test is simple: total switching cost versus the interest genuinely saved over the time you’ll keep the loan.
A cashback offer can look like it covers the costs — and sometimes it does. But a cashback attached to a higher ongoing rate can cost you far more over the life of the loan than the one-off payment gives back. Judge the rate first, treat the cashback as a tie-breaker.
Your equity is thin
If your loan is close to or above 80% of the property’s value, refinancing can trigger a new round of LMI with the new lender — a cost that can dwarf the rate saving. If you’re near that line, it’s often better to build a little more equity first, then switch.
You’re about to sell — or reset the clock
Refinancing to save on a loan you’ll clear in a year rarely makes sense; the costs land now, the savings never fully arrive. And if you refinance to a fresh 30-year term at a lower rate but drop to the minimum repayment, you can pay more interest overall despite the better rate. If you do switch, keep your repayments where they were so the lower rate actually works for you. For genuine cash-flow trouble, restructuring or consolidating may fit better than a straight refinance.
Broker Insight. A lower advertised rate isn’t the whole story. We’ve talked clients out of switches that looked good on paper but cost more once break costs, LMI or a longer term were counted.
Get an honest yes or no before you switch
We’ll compare your current loan against the market, factor in every switching cost and break fee, and tell you plainly whether refinancing actually pays. Free, no obligation.
Book your free game plan callFrequently asked questions
Is it ever a bad idea to refinance?
Yes. Refinancing costs money — discharge fees, application and valuation costs, sometimes new LMI, and fixed-rate break costs. If those outweigh the interest you’d save, or if you’re about to sell, or resetting to a fresh 30-year term wipes out the monthly saving over time, refinancing can leave you worse off. The lower rate has to actually beat all the costs of getting it.
What are break costs?
If you’re on a fixed rate and leave before the term ends, the lender can charge a break cost — compensation for the interest it expected to earn. When rates have risen since you fixed, this can run into thousands or tens of thousands, easily erasing any saving from switching. Always ask your current lender for a break-cost figure before refinancing out of a fixed loan.
Does refinancing restart my loan term?
Usually yes — a new loan typically resets to a fresh term, often 30 years. A lower rate over a longer term can reduce your monthly repayment but increase the total interest you pay. You can avoid this by keeping your repayments at the old level or matching the remaining term, so the lower rate works in your favour rather than just stretching the debt.
This guide is general information only and does not take your personal circumstances into account. It is not financial or credit advice. Government schemes, lender policies, rates and tax rules change over time and eligibility criteria apply. Speak with us for advice tailored to your situation.