Refinance or Stay? How to Decide (With the Break-Even Test)

Refinancing is heavily marketed as free money. Sometimes it is. Sometimes it costs more than staying. Here's the framework that separates the two.

Step 1: The Reprice Call (Do This First)

Before any refinance, your current lender should be asked — in writing — to match the rate they're offering new customers. This costs nothing, takes days, and succeeds surprisingly often, because retention teams have pricing discretion. We make this call for clients as standard. If the reprice closes the gap, staying wins with zero switching cost.

Step 2: The Break-Even Test

If a better deal exists elsewhere, the maths is simple:

Break-even months = switching costs ÷ monthly saving

Typical switching costs: discharge fee (~$350), new-lender/government fees (~$400–$700), possible valuation. Call it ~$1,000, often offset by cashback.

Example: refinancing $650,000 from 6.4% to 5.9% saves roughly $200/month. Break-even = $1,000 ÷ $200 = 5 months. Everything after month five is pure saving — about $2,400 a year.

If your break-even is under 12 months and you'll hold the loan longer than that, refinancing is rational. If it's beyond 24 months, staying (or repricing) usually wins.

Step 3: Check the Traps

• Fixed-rate break costs — breaking a fixed loan early can cost thousands; usually wait for the fixed term to end
• Term reset — refinancing 24 remaining years into a new 30-year term lowers repayments but adds interest; match your remaining term instead
• LMI again — refinancing above 80% LVR can trigger a fresh LMI premium that destroys the benefit
• Cashback bait — $3,000 cashback onto a rate 0.3% higher than alternatives costs you money within 18 months

When Staying Is Right

Your rate is within ~0.15% of the market after a reprice; you're inside a fixed term with big break costs; your LVR is above 80%; or you plan to sell within a year. In those cases, we'll tell you to stay — and diarise a review for when the picture changes.

Refinancing for Structure, Not Just Rate

Rate is the headline, but many of the best refinances are structural: adding a genuine offset account (worth thousands over time if you hold savings — the mechanics are in our glossary), splitting fixed and variable to hedge rate risk, releasing equity for a renovation or investment deposit, or consolidating expensive debts into home-loan rates. A refinance that wins on rate but loses your offset, or resets your term without a plan, can be a net loss — which is why we model total cost over your remaining term, not just the monthly delta.

Reading Your Own Loan Statement

Three numbers to find before any decision: your current rate (statement or app), your remaining term, and your current balance. Then check the market: Moneysmart's switching guide explains the mechanics neutrally, and our refinance savings calculator turns your three numbers into a monthly and lifetime saving estimate in under a minute. If the gap to market is under ~0.15% after a reprice, staying is usually right; over 0.3%, the break-even maths almost always favours moving.

Special Situations

Fixed-rate borrowers: get a break cost quote from your lender before anything — it changes daily with market rates and can flip the decision. LVR above 80%: refinancing may trigger fresh LMI, so waiting for equity growth or a higher valuation often wins (we can test valuations across lenders). Self-employed borrowers who've grown income since their last application frequently unlock better lender tiers entirely. And if your credit file has taken damage since you settled, a specialist review beats guessing. Every one of these starts the same way: a free, no-obligation review of what you're actually on versus what the market would offer you today.

A 12-Month Loan Maintenance Habit

The cheapest refinance is the one you never need because your loan stays sharp. A simple annual ritual: check your rate against your lender's advertised new-customer offer (thirty seconds on their website); if the gap exceeds ~0.2%, send the retention team a written reprice request citing two competitor rates — we template this for clients; log the outcome and diarise next year. Add a structural check at life events: new job or pay rise (better lender tiers may open), renovation plans (equity release beats personal loans), growing card balances (consolidation before they compound), or an expiring fixed term (the revert rate is almost always terrible — act a month before, not after). Borrowers who run this loop typically save more over a decade than any single refinance delivers, because they capture every repricing cycle instead of one. We run it automatically for clients — one of the quiet benefits of the broker trail model — but the checklist works solo too.