When to Refinance and When to Stay Put

Refinancing saves you money when the numbers work in your favour, not just because someone tells you to shop around.

You refinance when the gap between what you're paying and what's available is wide enough to justify the cost and effort of switching. That gap changes based on your situation, not a calendar date.

The decision comes down to three things: the rate difference, how long you'll hold the loan, and what it costs to move. Everything else is noise.

Coming off a fixed rate period is the most obvious trigger

Your fixed rate expires and your lender moves you to their standard variable rate. That rate is almost always higher than what new customers get, sometimes by half a percent or more.

Consider a FIFO worker who locked in a fixed rate three years ago at 2.19% on a loan sitting around $450,000. The fixed term ends and the lender shifts them to a variable rate of 6.5%. Staying put means paying thousands more each year compared to locking in a new fixed rate or moving to a competitive variable product elsewhere.

You have about 90 days before your fixed term ends to sort out a refinance application and get it settled in time. If you're already past the expiry date, you're not locked out, you just need to move quickly to avoid paying the higher rate for longer than necessary.

Your lender hasn't moved your rate down while others have

Lenders don't automatically pass on rate cuts to existing customers at the same speed or scale they offer new loans. You might be paying 6.2% while the same lender advertises 5.8% to people walking in the door.

This happens more often than it should. Loyalty doesn't get rewarded in home lending. Lenders rely on inertia. If you haven't checked what you're paying against what's available in six months or more, you're likely paying more than you need to.

A loan health check every 12 months keeps you aware of where you sit. If the gap is 0.3% or more and you've got at least two years left on the loan, refinancing will likely put you ahead even after covering exit and application costs.

You need to access equity for something that adds value

Refinancing lets you pull equity out of your property to fund another purchase, whether that's an investment property, a renovation, or consolidating other debts into your mortgage at a lower rate.

In a scenario like this, a FIFO mobile plant operator with a property value that's climbed and a loan that's been paid down has access to equity that wasn't available when they first bought. They refinance to release that equity and use it as a deposit on a second property. The refinance gives them access to funds without selling, and they can structure the loan so the rental income covers most of the new borrowing.

Equity access only makes sense when what you're funding either generates income or reduces higher-interest debt. Refinancing to access equity for a holiday or a new car leaves you worse off, not ahead.

Your loan doesn't have the features you need now

You took out a loan five years ago that made sense at the time. Now you're earning more, your expenses have changed, and the loan structure doesn't match how you actually use money.

Maybe you're stuck without an offset account and you've got savings sitting in a separate account earning less interest than you're paying on the mortgage. Or you've got a loan with limited redraw access and you need flexibility for uneven income cycles that come with FIFO rosters.

Switching to a loan with an offset account means every dollar in that account reduces the interest you pay without locking the funds away. For someone on a swing with irregular pay cycles, that flexibility makes a real difference to how much interest you hand over each year.

The cost to leave is lower than the cost to stay

Some loans come with exit fees, discharge fees, or break costs if you're leaving a fixed rate early. You add those up, compare them to what you'll save by moving, and see which number is bigger.

Break costs on a fixed rate can run into thousands if rates have dropped since you locked in. Lenders calculate the cost based on the difference between your rate and what they can lend that money out at now. If that cost is $8,000 and you'll only save $4,000 over the remaining fixed period by switching, you stay put until the fixed term ends.

But if your fixed rate is costing you $15,000 more over the next two years compared to refinancing, and the break cost is $3,000, you move. The math is straightforward once you have the actual figures.

When you shouldn't refinance

You don't refinance if you're planning to sell within 12 months. The cost to refinance and the time it takes to recover that cost through lower repayments means you won't come out ahead.

You also don't refinance just because a lender offers you a rate that's 0.1% lower. The difference isn't enough to cover the application fees, valuation costs, and time spent on paperwork. Small gaps don't justify the move unless there's another benefit like accessing equity or getting an offset account you actually need.

If your loan is nearly paid off and you've only got a few years left, refinancing rarely makes sense unless you're accessing equity for something specific. The interest portion of your repayments is already small, so shaving a bit off the rate doesn't add up to much in real dollars.

Refinancing isn't something you do because it's been a while or because someone suggests it might be a good idea. You do it when the numbers prove it's worth the effort. If you're not sure whether your situation justifies a move or whether staying put makes more sense, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions