The Complete Guide to Refinancing Your Home Loan in Australia

Introduction: Why Every Australian Homeowner Should Understand Refinancing

If you took out your home loan more than a year or two ago, there’s a good chance you’re paying more than you need to. Lenders regularly offer better rates to new customers while existing borrowers sit on older, more expensive products. Refinancing is the process of replacing your current home loan with a new one — and it’s one of the most powerful financial tools available to Australian homeowners.

Whether you want to reduce your monthly repayments, access the equity you’ve built, consolidate expensive debts, or simply get a better deal, refinancing can deliver meaningful financial benefits. But it’s not a decision to take lightly. There are costs involved, timing matters, and the wrong move can cost you more than it saves.

This guide covers everything you need to know. We’ll walk through when refinancing makes sense, what it costs, how the process works step by step, and the most common mistakes to avoid. By the end, you’ll have the knowledge to make a confident, informed decision about whether refinancing is right for you.

Shern Advisory has helped hundreds of Melbourne homeowners refinance to better deals. This guide distils that experience into one comprehensive resource.

Chapter 1: When Should You Refinance Your Home Loan?

Timing is everything when it comes to refinancing. Move too early and you may face break costs that wipe out your savings. Wait too long and you could spend years overpaying on a loan that no longer suits your needs. Here are the key scenarios where refinancing makes strong financial sense.

Your Fixed Rate Is About to Expire

When your fixed-rate period ends, most lenders automatically roll you onto their standard variable rate — which is almost always higher than the competitive rates available in the market. This is one of the most common and clear-cut triggers for refinancing. If your fixed term is ending within the next three to six months, it’s time to start exploring your options. Many borrowers save thousands simply by switching to a more competitive product before the revert rate kicks in.

Interest Rates Have Dropped Since You Took Out Your Loan

If market rates have fallen since you first secured your mortgage, you could be paying significantly more interest than necessary. Even a reduction of 0.25% to 0.50% on a $500,000 loan can translate to savings of $1,500 to $3,000 or more per year. A broker can quickly compare your current rate against what’s available and tell you whether the savings justify the cost of switching.

Your Financial Situation Has Changed

Life changes — for better or worse — can make your current loan structure unsuitable. A pay rise, a new job, a growing family, or a shift from dual income to single income are all reasons to reassess. If you’re earning more, you might benefit from a loan that lets you make extra repayments or access an offset account. If money is tighter, refinancing to a longer term or lower rate can ease the pressure on your monthly budget.

You Want to Access Your Home’s Equity

If your property has increased in value since you bought it, you may have built up usable equity. Refinancing lets you tap into that equity for purposes like renovations, investing, education costs, or other significant expenses — often at interest rates far lower than personal loans or credit cards.

You’re Paying Too Many Fees

Some older loan products come with annual fees, package fees, or ongoing charges that newer products don’t. If your loan’s fee structure is costing you hundreds of dollars a year, refinancing to a no-fee or low-fee product can deliver instant savings.

You Want to Consolidate Debt

If you’re carrying high-interest debts like credit cards, personal loans, or car finance alongside your mortgage, refinancing can allow you to roll these into your home loan at a much lower interest rate. This simplifies your finances and can save you a significant amount in interest — though it requires careful planning to ensure you don’t end up paying more over the longer term.

Your Lender’s Service Has Declined

Sometimes the motivation isn’t purely financial. Poor customer service, limited features, or an inability to get timely responses from your lender can be valid reasons to switch. Your mortgage is likely your largest financial commitment — you deserve a lender that supports you properly.

Not sure if now is the right time? Shern Advisory offers a free refinance assessment that compares your current loan against the best options on the market. No obligation, no pressure.

Chapter 2: How Much Does Refinancing Cost?

Refinancing isn’t free, and understanding the costs involved is essential to making sure the switch actually saves you money. Here’s a breakdown of the fees you may encounter.

Discharge Fee (Your Current Lender)

When you leave your existing lender, they’ll typically charge a discharge or termination fee to close your loan and release the mortgage on your property. This usually ranges from $150 to $400, depending on the lender and your state.

Break Costs (Fixed-Rate Loans Only)

If you’re currently on a fixed-rate loan and you refinance before the fixed period ends, your lender may charge break costs. These can be substantial — sometimes thousands or even tens of thousands of dollars — depending on the remaining term and how much rates have moved since you locked in. Break costs are calculated based on the difference between your fixed rate and the current wholesale rate, multiplied by your remaining balance and time left. Always get a break cost estimate from your lender before committing to a refinance during a fixed period.

Application or Establishment Fee (New Lender)

Your new lender may charge an upfront fee to set up the loan. This typically ranges from $0 to $600. Many lenders waive this fee as an incentive, particularly when you’re refinancing through a broker who can negotiate on your behalf.

Valuation Fee

Your new lender will need to value your property to confirm it provides sufficient security for the loan. Some lenders cover this cost, while others charge between $200 and $600 depending on the property type and location.

Settlement or Legal Fees

There are administrative and legal costs associated with transferring the mortgage from one lender to another. These are usually handled by a conveyancer or solicitor and typically cost between $200 and $500.

Lenders Mortgage Insurance (LMI)

If your loan-to-value ratio (LVR) exceeds 80% — meaning you owe more than 80% of your property’s current value — you may need to pay LMI again with the new lender. LMI is not transferable between lenders, so this can be a significant cost. If your LVR is close to 80%, it may be worth waiting until you’ve paid down enough or your property value has increased sufficiently to avoid this charge.

Ongoing Fees

Consider the ongoing costs of the new loan, including any annual or monthly fees. A loan with a slightly higher interest rate but no ongoing fees may work out cheaper than a lower-rate product with a $395 annual package fee, depending on your loan size.

The Break-Even Calculation

Before refinancing, calculate your break-even point — the time it takes for your savings to exceed the upfront costs. Add up all the refinancing costs, then divide by your monthly savings. If it takes 12 months to break even and you plan to stay in the property for several more years, refinancing is likely worthwhile. If it takes three or more years, the decision becomes less clear-cut.

Cost Type	Typical Range	Who Charges It
Discharge fee	$150 – $400	Current lender
Break costs (fixed only)	$0 – $20,000+	Current lender
Application fee	$0 – $600	New lender
Valuation fee	$0 – $600	New lender
Settlement/legal fees	$200 – $500	Conveyancer/solicitor
LMI (if LVR > 80%)	$1,000 – $15,000+	New lender

Chapter 3: The Step-by-Step Refinancing Process

Refinancing can feel complex, but when you break it down into clear stages, the process is straightforward — especially with a broker managing the details for you. Here’s exactly what happens from start to finish.

Step 1: Review Your Current Loan

Start by understanding exactly what you have. Gather your most recent loan statement and note your current interest rate, remaining balance, loan term, any features you’re using (like an offset account or redraw), and whether you’re on a fixed or variable rate. Check for any exit fees or break costs that may apply. This gives you a clear baseline to compare against.

Step 2: Define Your Goals

Why do you want to refinance? Are you looking to lower your repayments, pay off your loan faster, access equity, consolidate debt, or get better loan features? Being clear about your objectives helps your broker find the right product rather than just the cheapest rate.

Step 3: Get a Professional Assessment

This is where a mortgage broker adds significant value. A broker will compare your current loan against hundreds of products across their lender panel, accounting for rates, fees, features, and your specific circumstances. They’ll tell you how much you could save and whether the numbers justify switching.

Step 4: Choose Your New Loan

Based on the assessment, your broker will present the best options. You’ll compare them side by side — looking at interest rates, comparison rates (which include fees), loan features, flexibility, and total cost over the life of the loan. Once you’ve chosen, you’ll sign the application.

Step 5: Application and Approval

Your broker submits the application to the new lender along with all supporting documentation — income verification, identification, property details, and your existing loan information. The new lender will assess your application and arrange a property valuation. This stage typically takes one to three weeks.

Step 6: Settlement

Once approved, the settlement process begins. Your new lender pays out your old loan, the mortgage is transferred, and your new loan becomes active. Settlement is handled by solicitors or conveyancers and usually takes two to four weeks after approval. You don’t need to do much during this stage — your broker and the legal teams manage the process.

Step 7: Set Up Your New Loan

Once settlement is complete, set up any features you want to use — offset accounts, automatic extra repayments, redraw facilities. Make sure any direct debits are updated to come from your new account. This is also a good time to review your repayment schedule and ensure it aligns with your financial goals.

The entire process typically takes four to eight weeks from initial assessment to settlement. With a broker handling the paperwork and lender coordination, most borrowers find it far simpler than they expected.

Chapter 4: Refinancing to Access Equity

One of the most common reasons Australians refinance is to access the equity they’ve built up in their property. Equity is the difference between your home’s current market value and your remaining loan balance. As you pay down your mortgage and as property values rise, your equity grows — and it can be a powerful financial resource.

How Equity Works

If your home is worth $800,000 and you owe $450,000, your equity is $350,000. However, most lenders will only let you borrow up to 80% of your property’s value without triggering LMI. In this example, 80% of $800,000 is $640,000. Subtract your current loan balance of $450,000 and your usable equity is $190,000.

What Can You Use Equity For?

Accessed equity can be used for a wide range of purposes. Home renovations are one of the most popular uses — upgrading your property can increase its value further while improving your living situation. Other common uses include purchasing an investment property, funding education costs, buying a car, covering medical expenses, or investing in a business. The key advantage is that mortgage interest rates are typically far lower than personal loan or credit card rates, making equity access a cost-effective way to fund major expenses.

How the Process Works

When you refinance to access equity, your new loan amount will be higher than your current balance. The difference is paid to you as cash — either as a lump sum or placed into a separate loan split. Your broker will help you structure this in the most tax-effective way, particularly if the funds are being used for investment purposes where the interest may be tax-deductible.

Risks to Consider

Accessing equity increases your total debt, which means higher repayments and more interest over the life of the loan. It also reduces the buffer between what you owe and what your property is worth, which can be risky if property values decline. Use equity strategically — borrowing for appreciating assets like property or value-adding renovations is generally sound, while borrowing for lifestyle expenses or depreciating assets requires more careful consideration.

Want to know how much usable equity you have? Contact Shern Advisory for a free equity assessment — we’ll estimate your property’s current value and calculate how much you could access.

Chapter 5: Refinancing After Your Fixed Rate Expires

If you locked in a fixed rate during the low-interest environment of recent years, your fixed period may be ending soon — or may have already ended. This is a critical moment for your finances, and what you do next can save or cost you thousands.

What Happens When Your Fixed Rate Ends

When your fixed-rate period expires, your lender will automatically move you to their standard variable rate, often called the revert rate. This rate is almost always significantly higher than the competitive rates available in the market. Many borrowers are shocked to see their repayments jump by hundreds of dollars per month when this happens.

Why You Shouldn’t Just Accept the Revert Rate

Lenders rely on borrower inertia — the hope that you’ll simply accept the higher rate rather than go through the effort of switching. But the difference between a revert rate and a competitive market rate can be 0.5% to 1.5% or more. On a $600,000 loan, that’s $3,000 to $9,000 per year in unnecessary interest. The effort of refinancing is relatively small compared to these savings.

When to Start Planning

Don’t wait until your fixed rate actually expires. Start exploring your options three to six months before the end date. This gives you time to compare products, complete an application, and settle with a new lender before the revert rate takes effect. Some lenders even allow you to lock in a new rate ahead of time.

Should You Fix Again or Go Variable?

This depends on your risk tolerance and the current rate environment. Fixing gives you certainty — you know exactly what your repayments will be for the fixed period. Variable rates offer more flexibility, including the ability to make extra repayments, use offset accounts, and benefit from any rate decreases. A split loan — part fixed, part variable — can give you elements of both. Your broker can help you weigh these options based on where rates are likely headed and your personal financial situation.

Chapter 6: Refinancing With Bad Credit

Having a less-than-perfect credit history doesn’t automatically disqualify you from refinancing. While it does make the process more complex, there are lenders who specialise in working with borrowers who have experienced financial difficulties. Understanding your options is the first step.

What Counts as “Bad Credit”?

In the context of home loans, bad credit typically refers to defaults on previous loans or bills (listed on your credit report), a history of late payments, previous bankruptcy or Part IX debt agreements, too many credit enquiries in a short period, or a low credit score (generally below 500). The severity and recency of the credit issue matters — a paid default from five years ago is viewed very differently from an unpaid default from six months ago.

How Bad Credit Affects Refinancing

Major lenders (the big four banks and most mainstream institutions) have strict credit policies and will generally decline applications with recent defaults or significant credit blemishes. However, non-bank lenders and specialist lenders often have more flexible criteria. The trade-off is that these lenders typically charge higher interest rates — sometimes 1% to 3% above standard rates — to compensate for the additional risk.

Steps to Improve Your Position

Before applying, take steps to strengthen your application. Obtain a copy of your credit report and check for errors — incorrect defaults or outdated information can be disputed and removed. Pay off any outstanding defaults if possible, as paid defaults are viewed more favourably than unpaid ones. Reduce your existing debt levels and avoid making new credit applications, as each enquiry can lower your score. If you can wait six to twelve months while improving your credit, you may qualify for significantly better rates.

The Role of a Broker

A broker is particularly valuable when credit is an issue. They know which lenders are more accommodating of various credit situations and can match you with the right one without the risk of multiple rejections (each of which further damages your credit score). They can also help you structure your application to present your situation in the most favourable light, including providing explanations for past credit events and evidence that your financial position has improved.

Refinancing as a Credit Recovery Strategy

Some borrowers use a two-step approach: first, refinance to a specialist lender who accepts their current credit situation, then refinance again to a mainstream lender once their credit has improved — usually after two to three years of clean repayment history. This approach can be effective, but make sure the costs of each refinance are justified by the overall savings.

Chapter 7: Refinancing to Consolidate Debt

Debt consolidation through refinancing is one of the most effective ways to simplify your finances and reduce the total interest you pay. If you’re juggling multiple debts at different interest rates, rolling them into your home loan can deliver immediate relief — but it requires a disciplined approach.

How It Works

When you refinance to consolidate debt, you increase your home loan by the amount of the debts you want to pay off. The new lender pays out your existing home loan plus your other debts, and you’re left with one single repayment at your mortgage interest rate. For example, if your current mortgage is $400,000 and you have $30,000 in credit card debt and a $20,000 car loan, your new home loan would be $450,000.

The Interest Rate Advantage

The main benefit is the interest rate differential. Credit cards typically charge 18% to 22% interest. Personal loans charge 8% to 15%. Car loans charge 6% to 12%. Your mortgage rate might be 5% to 7%. By moving high-interest debts onto your mortgage rate, you can dramatically reduce the total interest you pay.

Debt Type	Typical Rate	After Consolidation
Credit cards	18% – 22%	Your mortgage rate (typically 5% – 7%)
Personal loans	8% – 15%
Car finance	6% – 12%
Store credit	15% – 25%

The Critical Warning: Loan Term Extension

Here’s where many people get caught. A credit card balance might take three to five years to pay off at its current rate. But when you roll it into a 25-year mortgage, you’re technically paying interest on that debt for much longer. Even at a lower rate, the total interest paid can be higher over the extended term. The solution is to increase your mortgage repayments to pay off the consolidated amount faster. A good broker will help you structure this — for example, setting up a separate loan split for the consolidated debt with higher repayments so it’s paid off within a few years rather than stretching over your full mortgage term.

When Consolidation Makes Sense

Debt consolidation is most effective when you have multiple high-interest debts that are costing you significantly more than your mortgage rate, you have sufficient equity to absorb the additional debt without pushing your LVR above 80%, you commit to a repayment plan that pays off the consolidated debt quickly, and you address the underlying spending habits that created the debt in the first place. Without that last point, consolidation can become a cycle — freeing up credit cards only to run them up again while also carrying a larger mortgage.

Chapter 8: Refinance vs Renegotiate — What’s the Difference?

Before you commit to switching lenders entirely, it’s worth understanding the difference between refinancing and renegotiating. They’re often confused, but they serve different purposes and involve different processes.

What Is Renegotiating?

Renegotiating (sometimes called a rate review or retention offer) means approaching your current lender and asking them to give you a better deal. This could mean a lower interest rate, reduced fees, or access to features your current product doesn’t include. The key advantage is that it doesn’t involve switching lenders, so there are no discharge fees, no new application, no valuation, and no settlement process. It can often be done with a phone call.

When Renegotiating Works

Renegotiating is most effective when you have a strong repayment history with your current lender, your current rate is only slightly above competitive market rates, you’re happy with your lender’s service and features, and the costs of refinancing would take a long time to recoup. Many lenders have retention teams whose job is to keep existing borrowers. If you call and mention you’re considering switching, they’ll often offer a discount — typically 0.1% to 0.4% — to retain your business.

When Refinancing Is the Better Option

Refinancing makes more sense when your lender’s best offer still isn’t competitive with the market, you want features your current lender doesn’t offer (like an offset account or redraw), you want to change your loan structure (such as splitting between fixed and variable), you need to access equity, you want to consolidate debts, or your lender’s service has been consistently poor. The savings from a full refinance are usually larger than what you can achieve through renegotiation alone, but the process takes more time and involves costs that renegotiation doesn’t.

The Smart Approach: Try Both

A good strategy is to start with renegotiation. Call your lender and ask for a better rate. If they offer something competitive, you save time and money. If they don’t — or if the improvement is marginal — proceed with a full refinance. A broker can even use a competing offer as leverage when negotiating with your current lender, often achieving a better outcome than you’d get on your own.

Chapter 9: Common Refinancing Mistakes to Avoid

Refinancing can deliver significant savings, but only if you avoid the pitfalls that trip up many borrowers. Here are the most common mistakes and how to steer clear of them.

Mistake 1: Focusing Only on the Interest Rate

The headline interest rate is important, but it’s not the whole picture. A loan with a rate 0.1% lower but a $395 annual fee and limited features may cost you more overall than a slightly higher-rate product with no fees and a useful offset account. Always compare using the comparison rate, which factors in fees and charges, and consider the total cost of the loan over the period you expect to hold it.

Mistake 2: Ignoring Break Costs on Fixed Loans

Breaking a fixed-rate loan early can incur costs that completely erase any savings from refinancing. Always request a break cost estimate from your lender before proceeding. If the break costs are high, it may be worth waiting until the fixed period ends before refinancing.

Mistake 3: Extending Your Loan Term Without Realising

When you refinance, you may be offered a new 30-year loan term. If you’ve already been paying your mortgage for 10 years, resetting to 30 years means you’ll be paying for 40 years in total. This can add tens of thousands of dollars in interest even at a lower rate. Always try to match or shorten your remaining term when refinancing — or at minimum, maintain the same repayment amount so you pay off the loan in the original timeframe.

Mistake 4: Not Accounting for All Costs

Some borrowers focus on the monthly repayment savings without factoring in discharge fees, application fees, valuation costs, legal fees, and potentially LMI. Always calculate the total cost of refinancing and your break-even point before committing.

Mistake 5: Consolidating Debt Without Changing Habits

Rolling credit cards and personal loans into your mortgage can save money on interest, but if you don’t address the spending habits that created the debt, you risk accumulating new debt on top of your larger mortgage. Close or reduce the limits on credit cards after consolidation and create a budget to prevent the cycle from repeating.

Mistake 6: Refinancing Too Frequently

While it’s important to stay competitive, refinancing every year or two can accumulate significant costs in fees and may raise red flags with lenders. A good rule of thumb is to refinance when the potential savings over a realistic holding period significantly exceed the costs — not just because a marginally better rate appears.

Mistake 7: Going It Alone Without Professional Advice

The refinancing market is complex, with hundreds of products across dozens of lenders. Without a broker’s expertise and access to wholesale rates, you may not find the best deal — or you may overlook important details like cashback offers, fee waivers, or features that could save you more than the rate itself.

Mistake 8: Not Reading the Fine Print

Some loans come with restrictions that aren’t immediately obvious — clawback clauses on cashback offers if you leave within a certain period, limits on extra repayments, redraw minimums, or restrictions on switching between fixed and variable. Read the product disclosure statement carefully and ask your broker to flag anything unusual.

Chapter 10: How Much Can Refinancing Actually Save You?

The savings from refinancing vary depending on your loan size, current rate, and the rate you refinance to. But to give you a sense of the real-world impact, here are some illustrative scenarios.

Scenario 1: Dropping Your Rate by 0.50%

On a $500,000 loan with 25 years remaining, reducing your rate from 6.50% to 6.00% saves approximately $1,800 per year in interest — or $165 per month. Over the remaining 25-year term, that’s roughly $45,000 in total savings. After accounting for refinancing costs of approximately $1,000, you break even in about seven months.

Scenario 2: Dropping Your Rate by 1.00%

Same loan, but a 1% rate reduction from 6.50% to 5.50%. Your annual savings jump to approximately $3,500 per year — or nearly $300 per month. Over 25 years, the total savings approach $87,000. Break-even point: around four months.

Scenario 3: Consolidating $40,000 in Debt

If you consolidate $40,000 of credit card debt (at 20% interest) into your mortgage (at 6%), you save roughly $5,600 per year in interest on that portion alone. However, this only works in your favour if you commit to paying off the consolidated amount within five to seven years rather than letting it stretch over the full mortgage term.

Scenario 4: Fixed Rate Expiry

If your fixed rate of 4.50% expires and your lender’s revert rate is 7.20%, but you refinance to a competitive variable rate of 5.80%, you save approximately 1.40% on your entire loan balance. On a $600,000 loan, that’s around $8,400 per year or $700 per month.

Scenario	Loan Balance	Rate Drop	Annual Saving	Break-Even
0.50% rate reduction	$500,000	6.50% → 6.00%	~$1,800	~7 months
1.00% rate reduction	$500,000	6.50% → 5.50%	~$3,500	~4 months
Debt consolidation ($40k)	$440,000 → $480,000	20% → 6%	~$5,600	Immediate
Fixed rate expiry	$600,000	7.20% → 5.80%	~$8,400	~2 months

These are illustrative examples only. Your actual savings will depend on your specific loan balance, current rate, new rate, and the costs of switching. Shern Advisory can provide a personalised calculation based on your exact circumstances.

Your Refinancing Checklist

Before you refinance, make sure you’ve covered these essentials:

• Know your current loan details: interest rate, remaining balance, loan term, features, and any exit costs.
• Define your goal: lower repayments, shorter term, equity access, debt consolidation, or better features.
• Calculate the costs: discharge fees, break costs, application fees, valuation, legal fees, and potential LMI.
• Calculate your break-even point: how long until your savings exceed your costs.
• Check your credit report: correct any errors and address any issues before applying.
• Gather your documents: payslips, tax returns, bank statements, ID, and property details.
• Consider renegotiating first: your current lender may offer a retention discount.
• Compare the full picture: rates, comparison rates, fees, features, and flexibility — not just the headline number.
• Don’t reset your loan term: match or shorten your remaining term to avoid paying more interest overall.
• Talk to a broker: get independent, professional advice before making a decision.

Conclusion: Take Control of Your Mortgage

Your home loan is likely the largest financial commitment you’ll ever make, and it deserves regular attention. Refinancing isn’t about chasing the lowest rate on a whim — it’s about making sure your mortgage continues to work in your best interest as your circumstances and the market evolve.

Whether you’re approaching the end of a fixed-rate period, carrying expensive debts alongside your mortgage, sitting on equity you’d like to put to work, or simply paying more than you need to, refinancing can deliver meaningful, measurable financial benefits.

The key is to do it strategically: understand the costs, calculate the savings, avoid the common mistakes, and work with a professional who can navigate the market on your behalf.

Ready to find out how much you could save? Contact Shern Advisory today for a free, no-obligation refinance assessment. We’ll compare your current loan against the best options on the market and give you a clear picture of what’s possible.

Frequently Asked Questions