Refinancing your home loan can be worth considering when your current loan no longer suits your circumstances. A lower interest rate may reduce repayments, while a different loan structure or features such as an offset account may better match your needs.
However, refinancing isn’t automatically beneficial. Switching lenders can involve costs, and a lower interest rate does not necessarily mean you will save money overall.
One practical way to assess a refinance is to calculate your break-even point — how long it would take for the potential savings from the new loan to cover the costs of refinancing.
What does refinancing a home loan mean?
Refinancing generally involves replacing your existing home loan with a new loan, either with your current lender or another lender.
Borrowers may consider refinancing to:
- Review their interest rate
- Change loan features
- Move from a fixed rate to a variable rate, where appropriate
- Access an offset account or other features
- Consolidate eligible debts
- Change their loan structure
- Review their lending arrangements as their circumstances change
The reasons for refinancing vary between borrowers. A lower interest rate can be a consideration, but it shouldn’t be the only factor.
Is it worth refinancing in 2026?
Whether refinancing is worthwhile depends on the numbers and your circumstances.
A useful starting point is to compare your existing loan with the proposed new loan across:
- Current interest rate
- New interest rate
- Outstanding loan balance
- Remaining loan term
- New loan term
- Estimated repayments
- Refinancing costs
- Loan features
- Fixed-rate break costs, if applicable
- Ongoing fees
For example, imagine you have:
- Existing loan balance: $600,000
- Current interest rate: 6.00%
- Proposed new rate: 5.50%
A 0.50 percentage-point difference may appear attractive, but the potential savings need to be considered alongside the costs of changing loans.
The actual saving will depend on how interest is calculated, your loan balance, repayment structure, and how long you keep the loan.
How does a refinance break-even calculation work?
The basic concept is straightforward:
Break-even period = Total refinancing costs ÷ Monthly savings
For example, assume refinancing would involve:
- $3,000 in total refinancing costs
- Estimated monthly saving of $250
The break-even period would be:
$3,000 ÷ $250 = 12 months
In this simplified example, you would need to keep the new loan for approximately 12 months before the estimated savings covered the refinancing costs.
After that point, assuming the underlying assumptions remain unchanged, the estimated interest savings could exceed the initial refinancing costs.
However, this is only a simplified calculation. Actual loan savings can change over time as the loan balance falls and interest rates change.
What refinancing costs should you include?
A break-even calculation is only useful if you include the relevant costs. Depending on your circumstances, these may include:
Discharge fees
Your existing lender may charge a fee when you repay and close the current loan.
Application or establishment fees
A new lender may charge fees for setting up the new loan, although some products may waive particular fees.
Valuation fees
A property valuation may be required as part of the new lender’s assessment.
Government and registration costs
Changing a mortgage can involve applicable registration or administrative costs.
Fixed-rate break costs
If your existing loan is fixed, ending the loan early may result in break costs depending on the loan terms and market conditions.
Other costs
Legal, conveyancing or other professional costs may apply in some circumstances.
Not every borrower will incur every cost, so check the actual fees that apply to your existing and proposed loans.
How do you calculate refinancing savings?
Comparing interest rates alone doesn’t give you the complete picture.
Suppose you have a $500,000 loan and are considering moving from 6.00% to 5.50%. The simple annual rate difference is 0.50 percentage points.
However, you shouldn’t simply calculate:
$500,000 × 0.50% = $2,500
and assume this will be your annual saving.
Your loan balance changes as you make repayments, interest is calculated according to the loan terms, and the repayment structure can affect the result.
A proper comparison should therefore consider the actual loan balance, repayment frequency, remaining term and proposed loan structure.
What if refinancing lowers your repayment?
A lower repayment isn’t necessarily the same as a lower total loan cost.
For example, refinancing a loan and extending the loan term could reduce the regular repayment while increasing the length of time you pay interest.
This is why borrowers should compare both:
Short-term affordability
Can the new repayment fit comfortably within your budget?
Long-term cost
How much interest and other costs could you pay over the remaining life of the loan?
If you refinance, keeping the new loan term aligned with your original remaining term can make the comparison more meaningful, although the appropriate structure depends on your circumstances.
Can refinancing help with debt consolidation?
Some borrowers refinance to consolidate eligible debts into their home loan.
This can potentially simplify multiple repayments into one loan arrangement, but it also changes the way the debt is structured.
For example, unsecured debt that might otherwise be repaid over a shorter period could become part of a longer-term mortgage.
A lower interest rate does not automatically mean the debt will cost less overall if the repayment period becomes significantly longer.
Before consolidating debts, consider the total interest, fees, loan term and repayment structure.
Should you refinance for a lower interest rate?
A lower interest rate can be one reason to consider refinancing, but the rate should be assessed alongside the entire loan package.
Compare:
- Interest rate
- Comparison rate
- Fees
- Loan features
- Offset availability
- Redraw functionality
- Repayment requirements
- Fixed or variable structure
- Loan term
- Break costs
- Other conditions
A loan with a slightly higher rate could potentially suit a borrower better if its features and overall costs are more appropriate for their circumstances.
What about switching lenders without refinancing?
You don’t necessarily have to move to another lender to review your home loan.
Your existing lender may have other products or may be willing to discuss your current rate and loan structure.
Before switching, it can be worth asking your current lender what options are available.
This gives you another point of comparison and may help you understand whether changing lenders is necessary for your objectives.
How does your loan-to-value ratio affect refinancing?
Your loan-to-value ratio (LVR) compares your loan amount with the value of the property securing the loan.
For example, if your property is valued at $800,000 and your loan is $600,000:
LVR = $600,000 ÷ $800,000 = 75%
Your LVR can affect which lending options may be available and the pricing a lender may offer.
If your property value has changed since you originally took out the loan, a new lender may require a valuation as part of its assessment.
It’s important not to assume that a change in property value will automatically result in a better loan offer.
What could stop you from refinancing?
Not every refinance application will be approved.
A lender may assess factors such as:
- Income
- Employment
- Existing debts
- Living expenses
- Credit history
- Loan balance
- Property value
- LVR
- Loan purpose
- Ability to service the proposed loan
Changes in your financial circumstances since you took out your existing mortgage can therefore affect your refinancing options.
A lower advertised rate is only relevant if you qualify for the loan and the overall structure suits your circumstances.
How long should you keep a refinanced loan?
This is where the break-even calculation becomes particularly useful.
If your refinance costs $3,000 and your estimated net saving is $250 per month, the simplified break-even point is 12 months.
If you expect to sell the property or refinance again before that point, the estimated savings may not cover the initial costs.
If you expect to keep the new loan for several years, there may be more time for potential savings to offset the switching costs.
The calculation should be based on your expected circumstances rather than assuming you will keep the loan indefinitely.
A simple refinancing comparison
Consider a borrower with the following situation:
| Existing loan | Proposed loan | |
|---|---|---|
| Loan balance | $600,000 | $600,000 |
| Interest rate | 6.00% | 5.50% |
| Remaining term | 25 years | 25 years |
| Estimated refinance costs | — | $3,000 |
The proposed loan has a lower interest rate, but the borrower should not stop the comparison there.
They should also check the actual repayment amount, loan features, fees, and whether the proposed lender will approve the application.
If the estimated monthly saving were $250, the simplified break-even calculation would be:
$3,000 ÷ $250 = 12 months
This means the initial costs would take approximately one year to recover through the estimated monthly savings, assuming the assumptions remain unchanged.
How MorFin Group can help with refinancing
Refinancing involves more than finding a lower advertised rate.
MorFin Group can help you review your existing loan, understand potential refinancing costs, and explore relevant lending options through more than 25 banks and lending institutions.
We take an education-first approach, helping you understand how the interest rate, fees, loan features, repayments and loan term fit together.
Whether you are considering refinancing for a lower rate, changing loan features or reviewing your broader lending position, the appropriate option will depend on your circumstances and lender assessment.
Conclusion
Refinancing can potentially reduce borrowing costs or provide a loan structure that better suits your current circumstances, but the benefits should be assessed against the costs of switching.
A simple break-even calculation can provide a useful starting point:
Refinancing costs ÷ estimated monthly savings = approximate break-even period
However, borrowers should also consider loan features, fees, loan term, LVR, eligibility and their longer-term financial position.
If you’re considering refinancing your home loan in 2026, MorFin Group can help you compare relevant lending options and work through the numbers before deciding whether a refinance makes sense for your circumstances.
FAQs
Q1. Is it worth refinancing a home loan in 2026?
It depends on your current loan, available alternatives, refinancing costs, loan features, and financial circumstances. A break-even calculation can help you compare the potential savings with the costs of switching.
Q2. How do I calculate the break-even point when refinancing?
Divide the total cost of refinancing by the estimated monthly savings. For example, $3,000 in costs divided by $250 in monthly savings gives a simplified break-even period of 12 months.
Q3. How much should my interest rate drop before I refinance?
There is no single rate reduction that makes refinancing worthwhile for every borrower. The potential saving should be compared with refinancing costs, loan features, remaining term and your circumstances.
Q4. What costs are involved in refinancing a home loan?
Depending on the loan and circumstances, costs may include discharge fees, application or establishment fees, valuation costs, registration charges and fixed-rate break costs.
Q5. Can I refinance if I have a fixed-rate mortgage?
You may be able to refinance a fixed-rate loan, but breaking the existing loan before the fixed period ends can result in break costs. Check your loan terms and ask your lender for the applicable amount.
Q6. Does refinancing affect my credit score?
Applying for new credit can result in credit enquiries, which may be recorded on your credit report. The effect can depend on your circumstances and credit history.
Q7. Can I refinance with the same lender?
Potentially. Your existing lender may offer alternative loan products or allow you to change your loan structure without moving to another lender. The available options depend on the lender and your circumstances.
Q8. Can I refinance to consolidate debt?
Some borrowers may be able to refinance and consolidate eligible debts into a home loan, subject to lender criteria. The longer loan term should be considered because it can affect the total cost of the debt.
Q9. Can I refinance if my property value has increased?
A change in property value may affect your LVR and potentially the lending options available to you. A lender may require a valuation as part of its assessment.
Q10. What is LVR and why does it matter when refinancing?
LVR is the loan amount expressed as a percentage of the property’s value. It can influence lender assessment and the lending options or pricing available.
Q11. Should I refinance if my current lender offers a lower rate?
It may be worth comparing your existing lender’s offer with alternatives, including fees, features, loan term, and total cost. A lower rate should be considered as part of the overall loan comparison.
Q12. How long does refinancing take?
The timeframe varies depending on the lender, documentation, valuation, application complexity, and whether additional requirements need to be completed.