Is Refinancing Worth It to Save 0.5% on Your Rate?

The short answer

Dropping your interest rate by 0.5% usually is worth it on a typical Australian mortgage, because the monthly saving is large relative to the one-off switching costs. On a $600,000 loan with 30 years left, cutting the rate from 6.0% to 5.5% lowers the monthly repayment by about $190 (roughly $2,290 a year), while switching costs are usually a few hundred dollars. Three things can flip the answer: paying lenders mortgage insurance (LMI) a second time, fixed-rate break costs, and resetting the term back to 30 years.

How refinancing maths works in Australia

Refinancing replaces your existing loan with a new one, either at your current lender (a "rate switch" or "product switch") or by moving to another lender. A lower rate means more of each repayment goes to principal and less to interest, so you either pay less each month or clear the debt sooner.

The cost side has a few moving parts:

Cost	Typical range	Notes
Discharge fee (old lender)	$150–$500	Releases the old lender's claim on the title
Application / settlement fee (new lender)	$0–$700	Often waived as a promotion
Property valuation	$0–$600	Sometimes free
Government title fees	~$150–$240	Varies by state
LMI (if LVR > 80%)	Can be thousands	Does not transfer between lenders
Fixed-rate break cost	Varies — can be thousands	Only if you exit a fixed term early

Ranges per the official Moneysmart switching guide. Two cost items most often make refinancing not worth it:

• LMI again. If your loan is more than 80% of the property's value, a new lender will charge fresh LMI, and LMI you already paid is not refundable or transferable. Staying put or switching internally can avoid this.
• Break costs. Exiting a fixed-rate loan mid-term can trigger a break fee running into the thousands. Variable loans don't have these.

Refinancing also often resets your loan term back to 30 years. A lower rate over a longer term can mean you pay more total interest even though each repayment is smaller, so compare like-for-like by keeping the remaining term the same.

Worked example: $600k, 6.0% → 5.5%

Take a $600,000 loan over 30 years, principal & interest, monthly repayments:

	At 6.0%	At 5.5%
Monthly repayment	$3,597	$3,407
Total interest (30 yrs)	$695,029	$626,424
Total cost	$1,295,029	$1,226,424

The 0.5% cut saves about $190 per month and $68,600 in total interest over a full 30-year term. (Your real figure is smaller if you have, say, 25 years left rather than a fresh 30.)

Now net off the switching costs. If your loan-to-value ratio (LVR) is 80% or below, LMI is zero, and total switching costs might be around $800. At $190/month saved, you'd recover those costs in about 4–5 months, comfortably worth it on the numbers.

But if your LVR is, say, 90% and a new lender charges fresh LMI of roughly $10,740 on a $600k loan (about 1.79% at the 90% band), recovery stretches past 4.5 years, and an internal switch or waiting until you're below 80% LVR may make more sense. See how LMI is calculated and the full cost-to-refinance breakdown.

Model this in True Loan

True Loan lets you build both scenarios and put them side by side at trueloan.app/compare, free, no login, fully in your browser.

1. Scenario A (current loan): enter your loan balance, rate (e.g. 6.0%), and the years remaining, not a fresh 30 unless that's really what you have.
2. Scenario B (refinanced loan): copy the same balance and term, then set the lower rate (e.g. 5.5%). Keep the term identical so you're comparing the rate alone.
3. Read off the monthly repayment and total interest for each. The gap is your gross saving.
4. To check the term-reset trap, run a third scenario at 5.5% over a fresh 30 years and watch the total interest move.

If you keep repayments at the old, higher amount after refinancing, model that as an Extra repayment ($/month) equal to the difference (about $190 here); that's how you turn a rate cut into an earlier payoff. If you'd park savings in an offset instead, use the dedicated Offset balance input (these are two separate fields). True Loan accrues interest on the loan minus the offset, so a sustained balance clears the loan early.

Common questions and mistakes

• Does a 0.5% cut always pay off? No. Recheck if you'd pay fresh LMI (LVR over 80%) or break a fixed rate. Run both scenarios first.
• Will my repayment definitely drop? Only if you keep the same term. A reset to 30 years can lower the repayment but raise total interest.
• Does LMI transfer to the new lender? No. It's a fresh charge if your LVR is still above 80%.
• Can I avoid most costs? Often, yes: an internal product switch with your current lender skips discharge and many setup fees.
• What about the comparison rate? It bundles fees into the headline rate, so it's a fairer way to compare two loans than the advertised rate alone.

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Figures are estimates for the 2025–26 financial year and depend on your loan, lender and LVR. Check official sources such as Moneysmart. This is general information, not financial or credit advice.