Refinancing Break-Even — When Does It Pay Off?

Refinancing can save money, but it isn't automatically worth it. The simplest way to decide is to calculate break-even — how long it takes your monthly savings to cover refinance costs.

Calculate your break-even now: Use the Refinance Calculator to see break-even months, net savings at 1/3/5 years, and whether refinancing is worth the fees — including cashback offers.

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What "break-even" means

Break-even is the point where:

Upfront refinance costs = total repayment savings

A quick estimate:

Break-even (months) ≈ Upfront costs ÷ Monthly savings

If you'll likely keep the loan longer than the break-even period, refinancing is more likely worth it.

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Step 1: Identify your refinance costs

Costs vary, but commonly include:

• current lender discharge fee ($150–$400)
• new lender application / settlement / package fees ($0–$600)
• valuation fees (sometimes waived)
• government registration fees ($100–$200)
• LMI impacts (in some situations)

For a complete breakdown:

• Refinance costs Australia — full fee breakdown with negotiation tips

For LMI context:

• LMI guide

Tip: If a lender "waives" a cost, check whether it's offset by a higher rate or ongoing fee.

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Step 2: Estimate your monthly savings

Monthly savings depend on:

• remaining loan balance
• remaining term
• rate reduction
• whether you keep repayments the same

Practical method:

1. calculate repayments at your current rate
2. calculate repayments at the new rate (same balance + term)
3. subtract the two repayments

Use the calculator twice:

• Home Loan Repayment Calculator

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Step 3: Calculate break-even

Use:

Break-even (months) = total upfront costs ÷ monthly savings

Example 1 (low costs)

• Balance: $550,000
• Rate: 6.40% → 6.00%
• Upfront costs: $1,200
• Monthly savings: ~$140
• Break-even: $1,200 ÷ $140 ≈ 9 months

Example 2 (higher costs)

• Balance: $700,000
• Rate: 6.50% → 5.90%
• Upfront costs: $3,000
• Monthly savings: ~$260
• Break-even: $3,000 ÷ $260 ≈ 12 months

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Common break-even traps (read this before refinancing)

1) Resetting your loan term

If you reset to 30 years, repayments may drop — but total interest can rise.

To understand why:

• Amortisation schedule explained

2) Ongoing fees wiping out savings

A lower rate can be cancelled out by:

• package fees
• offset account fees
• monthly account fees

Always compare net savings (after fees).

3) Cashback offers

Cashback can shorten break-even quickly, but check:

• whether the new rate is higher
• whether fees increase later
• any clawback conditions (repaying cashback if you leave early)

For detailed guidance:

• Refinance cashback explained — how offers work and common traps

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A practical decision checklist (10 minutes)

Refinancing is more likely worth it if:

• break-even is under ~12–18 months, and
• you plan to keep the loan longer than that, and
• the new loan improves features (offset, redraw) without big ongoing fees, and
• you're not extending your term without a plan

For offsets and flexibility:

• Offset account explained

For shopping and comparing:

• Mortgage quotes guide

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FAQs

What is a good break-even period for refinancing?

Many borrowers aim for under 12–18 months, but it depends on how long you'll keep the loan and whether the refinance improves your loan features.

Can refinancing increase total interest?

Yes — especially if you reset your loan term or refinance costs are added to your balance.

Do I include cashback in break-even?

You can subtract cashback from upfront costs, but check conditions and whether the rate/fees negate it long term.

Does refinancing affect LMI?

Sometimes. If your LVR changes or the lender requires LMI, it can change the economics. Check the LMI guide.

Is refinancing always worth it when rates drop?

Not always. Fees, term resets, and ongoing costs can outweigh savings.

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Related guides

• Refinance Calculator — calculate your break-even instantly
• Refinance costs Australia — complete fee breakdown
• Refinance cashback explained — how offers work
• Home Loan Repayment Calculator
• Mortgage quotes guide
• LMI guide

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Important: This guide is general information only. Fees and eligibility vary by lender and borrower. Consider professional advice before refinancing.