What refinancing actually costs.

Refinancing is sold as a no-brainer. Find a lower rate, move, done. In practice the rate is one input and the cost of moving is the other, and I have sat with plenty of people where the second one quietly cancels out the first.

None of what follows is a reason not to refinance. It is the list I work through before I tell someone whether it is worth it, and most of it is knowable up front rather than at settlement.

The fees you pay to leave

Your current lender charges a discharge fee when the loan is closed out. It is usually a few hundred dollars and it is rarely negotiable. On top of that there are government fees to discharge the old mortgage and register the new one, which vary by state.

If you are on a fixed rate and you break it part way through, there is a break cost as well. This one is not a flat fee. It is calculated on what the lender loses by having to re-lend your money at the rate available now rather than the rate you locked in, so it depends on how much is left, how long is left, and where rates have moved since. It can be nothing and it can be very large, and the only way to know is to ask your lender for the figure in writing.

That figure usually has a short expiry on it, which matters for timing. Getting it early and then taking six weeks to decide means getting it again.

The fees you pay to arrive

The new lender may charge an application or establishment fee. Valuations are less of an issue than people expect: with most major lenders I get them free because of the volume of loans we write, which is one of the quieter advantages of going through a broker rather than straight to a bank.

Depending on the state and the structure of the loan, stamp duty can also apply. It is less common on a straight like-for-like refinance than it is when the loan amount or the borrowers change, but it is worth asking rather than assuming.

If you are refinancing internally, which is staying with your current lender and moving to a different product, there is often a switching fee instead. That is usually cheaper than moving, and it is worth pricing as the alternative rather than treating a move as the only option.

A new valuation, and why it can change everything

A new lender will value the property themselves, and they are not bound by what anyone said it was worth before. If the valuation comes in lower than you expected, your loan to value ratio goes up, and that can move you into a different pricing tier or out of the product you were applying for.

This is the single most common reason a refinance that looked straightforward stops being straightforward.

The part worth knowing is that one lender’s valuation is not the same as the next. They use different valuers and different methods, and some are noticeably more aggressive than others when they are chasing business. Being able to look at more than one, and knowing which lenders tend to come in higher, is a large part of what you are paying a broker for.

LMI is the one that catches people

If you have less than twenty per cent equity, the new lender will generally require lenders mortgage insurance. The part people do not expect is that the LMI you already paid does not come with you. It was a policy taken out by your original lender, for their benefit, and it is generally not transferable.

So a refinance at under twenty per cent equity can mean paying LMI a second time on the same property. That cost can comfortably outweigh the benefit of a lower rate, which is why it is one of the first things I check rather than one of the last.

One thing worth knowing: if you took out LMI fairly recently, it is sometimes possible to get a partial refund from the original insurer. It is not automatic and the window is limited, so it has to be asked for.

The loan term is a choice, not a default

Refinances often default to a new thirty year term. If you are eight years into a loan and you go back out to thirty, your repayment drops, which feels like a win, and you have added eight years of interest at the back end if nothing else changes.

The important part is that you do not have to accept it. We can request whatever term suits you, subject to the loan still servicing. Nobody will offer that if you do not raise it, which is reason enough to raise it.

Resetting to thirty years can also be exactly the right move. If the point of refinancing is breathing room, a lower required repayment is the whole benefit. Pair it with an offset account and put extra in when you can, and you can pull the real term back in well under thirty years while keeping the lower repayment as your floor for the months when you need it.

That flexibility is the argument for thinking about the term deliberately rather than signing whatever is in front of you.

How I work out whether it is worth it

I add up every cost of moving, then work out how long the new arrangement takes to recover them. If you are planning to sell in two years and it takes three to break even, the answer is no regardless of how good the rate looks.

The honest outcome is sometimes that you stay where you are, and that is a legitimate result rather than a failed one. It is also sometimes worth going back to your current lender with what is available elsewhere, because retention pricing is a real thing and it costs nothing to ask.

ASIC has a mortgage switching calculator on Moneysmart if you want to run the numbers yourself before you speak to anyone. If you would rather I did it with your actual figures, that is a short conversation. If you are coming off a fixed rate specifically, I have written separately about what happens to your repayments when a fixed rate ends, and there is more detail on my refinancing page.