In short: Refinancing means replacing your current home loan with a new one, either with your existing lender or a new one, to get a lower rate, better features, or access to equity. On a $600,000 loan, moving from 6.40% to 5.90% saves about $194 a month and roughly $70,000 in interest over 30 years. Costs usually total $1,000 to $2,000, so most Melbourne borrowers break even within a year.
If you have had the same home loan for more than two or three years and never asked your lender for a better deal, there is a good chance you are paying more than a new customer would. This guide walks you through why people refinance, what it actually costs, how lenders assess you, and how to work out whether it is worth it for your own loan. It is written for owner-occupiers and investors across Melbourne and Victoria, with worked examples set in the northern suburbs where most of our clients live.
What refinancing actually is
Refinancing is a new loan application. A lender (new or existing) pays out your old mortgage, takes a mortgage over your property, and you start making repayments to them under fresh terms. Your property does not change hands, and you do not pay stamp duty again.
There are two flavours:
- External refinance: you move to a different lender. This is where the biggest rate improvements usually come from, but it involves a full application, a new valuation and a settlement.
- Internal refinance (repricing): you stay with your lender but negotiate a lower rate, switch products or change your loan structure. Less paperwork, though the outcome depends entirely on how much your lender wants to keep you.
A good broker will try the second option first, then bring the market to your lender if they will not move. That is exactly how our refinancing service works.
Reasons Melbourne borrowers refinance
To get a lower interest rate
This is the most common reason, and the one with the clearest payoff. Lenders compete hard for new borrowers and quietly leave existing customers on higher rates. The difference between a "back book" rate and a "front book" rate is often 0.30% to 0.60%, and on a typical Melbourne mortgage that is thousands of dollars a year.
To escape the loyalty tax
The "loyalty tax" is the informal name for the gap between what long-standing customers pay and what new customers are offered on the same product. It grows over time because lenders raise rates fully for existing borrowers while discounting for new ones. If your rate has crept up and you have not asked why, you are probably paying it. Our guide on when to refinance lists the signals that suggest your loan is overdue for a review.
To release equity
If your Epping house has risen in value since you bought, you may have usable equity you can borrow against for renovations, a deposit on an investment property, or a large purchase. Lenders will usually let you borrow up to 80% of the property's current value without lenders mortgage insurance. Run your numbers through the equity calculator to see what could be available.
To consolidate debts
Rolling a car loan, personal loan or credit cards into your mortgage can cut your monthly outgoings dramatically because home loan rates are far lower than unsecured rates. The trap is stretching short-term debt over a 30-year term. Read the debt consolidation guide before you do this, because the structure matters more than the rate.
To get better features
Many older loans have no offset account, limited redraw, or restrictive extra-repayment rules. If you have savings sitting in a transaction account, an offset can save more interest than a small rate cut. Our offset vs redraw guide explains which one suits which borrower.
Because a fixed term is ending
When a fixed rate expires, most lenders roll you onto their standard variable rate, which is often one of the highest rates they offer. This is the single best moment to review your loan, because there are no break costs and you are already going to be repriced. See fixed vs variable for how to think about your next term.
To switch from interest-only
Interest-only periods on investment loans usually run for five years. When they end, repayments jump because you now repay principal over the remaining term. Refinancing at that point lets you reset the structure, shop the rate, and sometimes extend the interest-only period if it still suits your strategy.
To get cashback
Some lenders offer a cash incentive to refinance in. The cash is real, but it should never be the reason to move. A 0.20% higher rate over a few years will swallow a $2,000 cashback several times over.
The refinancing process step by step
Refinancing normally takes two to six weeks from application to settlement. Here is the sequence.
1. Review your current loan
Find your current rate, remaining term, loan type (fixed or variable), features, and whether any fixed period or interest-only period is still running. Check your most recent statement or your lender's app.
2. Compare the market
A broker compares products across a panel of lenders and models the real cost, including fees, over the period you expect to hold the loan. The refinance calculator gives you a fast first estimate. Because brokers owe you a Best Interests Duty, the recommendation has to be in your interest, not the lender's.
3. Check your LVR and borrowing capacity
The lender will value your property and assess whether you can service the new loan. The two sections below explain both in detail, because they decide whether the refinance is approved and whether you will pay LMI.
4. Apply and supply documents
A full application with payslips, statements and identification. The checklist later on this page tells you what to have ready.
5. Valuation
The new lender orders a valuation. For standard suburban houses this is often a desktop or kerbside valuation done within a day or two. For unusual properties it may be a full inspection.
6. Approval and loan documents
Once approved, you sign a new loan contract and mortgage. Many lenders now accept digital signing, which shaves days off the timeline.
7. Discharge and settlement
Your new lender contacts your old lender to arrange the payout. You sign a discharge form with your outgoing lender. On settlement day the old loan is paid out, the new mortgage is registered on title, and your repayments start with the new lender.
What refinancing costs
The honest answer is "usually between $1,000 and $2,000", but it depends on your loan and which lender you leave and join.
Costs from your outgoing lender
- Discharge fee: typically in the $150 to $400 range. This covers the administration of releasing your mortgage.
- Break costs: only if you are on a fixed rate and rates have fallen since you fixed. These can run into thousands. Our guide on breaking a fixed-rate loan explains the calculation.
Costs from your new lender
- Application or establishment fee: ranges from nil to around $600. Frequently waived for refinances.
- Valuation fee: often absorbed by the lender, otherwise a few hundred dollars.
- Settlement or documentation fee: commonly $150 to $400.
- Ongoing fees: annual package fees or monthly account fees. Factor these into any comparison.
Government fees in Victoria
Land Use Victoria charges a fee to discharge the old mortgage from title and another to register the new one. These are set by the state, change each financial year, and together typically add a few hundred dollars. Your broker or conveyancer will quote the current figures.
Lenders mortgage insurance
If your new loan is above 80% of the property's value, the new lender will charge LMI again, even if you paid it on your original loan. LMI is not transferable between lenders. This is the cost that most often turns a good refinance into a bad one, so check your LVR first with the LVR calculator or read understanding LVR and LMI.
The savings: a worked example
Take a Craigieburn couple with a $600,000 owner-occupied loan. They have been with their lender four years and are paying 6.40%. A broker finds them 5.90% with a comparable lender. Both figures are for illustration only.
Full 30-year term
| Scenario | Rate (illustration) | Monthly repayment | Total interest over 30 years |
|---|---|---|---|
| Stay with current lender | 6.40% p.a. | $3,753 | $751,093 |
| Refinance | 5.90% p.a. | $3,559 | $681,175 |
| Difference | 0.50% | $194 a month | $69,918 |
That is about $2,330 a year in their pocket, or nearly $70,000 in interest over the life of the loan if they refinanced at the start.
25 years remaining
Most people refinancing already have a few years behind them. Here is the same $600,000 balance with 25 years left, keeping the term at 25 years rather than resetting to 30.
| Scenario | Rate (illustration) | Monthly repayment | Total interest over 25 years |
|---|---|---|---|
| Stay with current lender | 6.40% p.a. | $4,014 | $604,149 |
| Refinance | 5.90% p.a. | $3,829 | $548,764 |
| Difference | 0.50% | $185 a month | $55,385 |
Notice the repayment is higher on the 25-year loan than the 30-year one, even at the lower rate. That is what keeping the same term looks like, and it is the right way to compare.
Break-even: costs versus first-year savings
Add up what the refinance costs, then divide by the monthly saving. That tells you how many months until you are ahead.
| Item | Illustrative amount |
|---|---|
| Discharge fee (old lender) | $350 |
| Application fee (new lender) | $0 (waived) |
| Valuation fee | $0 (absorbed by lender) |
| Settlement fee (new lender) | $250 |
| Government registration and discharge fees | A few hundred dollars (varies) |
| Total cost (approx.) | $900 to $1,100 |
| First-year saving at $194 a month | $2,328 |
| Break-even point | About 5 to 6 months |
If the couple were on a fixed rate with a $6,000 break cost, the total cost would be closer to $7,000 and break-even would stretch past three years. That does not make it wrong, but it changes the decision.
How lenders assess a refinance
Serviceability and the APRA buffer
Lenders do not assess you at the rate you will actually pay. Under APRA's rules they add a buffer of 3 percentage points, so a loan at 5.90% is assessed as though you were paying 8.90%. This is why some borrowers who comfortably meet their current repayments still fail a refinance assessment, particularly if their income has fallen or they have taken on new debts since the original loan. Lenders also look at your living expenses, credit card limits (not balances), HECS, car loans and any dependants.
If serviceability is tight, a few lenders offer a reduced buffer for "like for like" refinances where the new repayment is lower than the old one. The criteria are strict, so ask.
LVR and the valuation
Your loan-to-value ratio is the new loan amount divided by the lender's valuation of your property. Below 80% you avoid LMI and usually qualify for the lender's sharpest pricing. Between 80% and 90% you may still be approved but LMI applies. Above 90% the options narrow considerably.
Valuations can disappoint. A lender's valuer is conservative, and the figure may come in below what a local agent told you. If that pushes your LVR above 80%, you can top up with savings, wait, or try another lender.
Your credit score
The new lender pulls your credit file. Every application shows as an enquiry, and repeated enquiries in a short window can lower your score. Missed repayments in the last 12 to 24 months are the biggest red flag. Before you apply, it is worth reading credit score and home loans and checking your own file for errors, which you can do for free.
Gorakh Timilsina spent years as a senior credit officer assessing applications like these, so at GNT Finance you get a realistic view of how a lender will read your file before anything is lodged. That avoids wasted enquiries.
Documents checklist
Have these ready and the application moves quickly.
- Driver licence and passport or Medicare card (100 points of ID)
- Two most recent payslips, plus your most recent PAYG summary or income statement from the ATO
- Self-employed: last two years of tax returns and notices of assessment, and financial statements
- Six months of statements for your current home loan showing repayment history
- Three months of statements for every other loan and credit card
- Current council rates notice for the property
- Building insurance certificate of currency
- A recent statement for any offset or savings account
- Details of any other properties you own and their loans
- Your existing fixed-rate expiry date, if applicable
Our home loan documents checklist covers each item in more detail.
Common mistakes when refinancing
Resetting to a 30-year term
Every refinance offer defaults to a fresh 30-year term. If you had 24 years left and accept 30, your monthly repayment falls even further, which feels great, but you will pay far more interest over the life of the loan. Ask for the term to match your remaining term, or keep making the repayment you were making before.
Ignoring break costs on a fixed loan
Get a written break-cost quote before you sign anything. The figure changes daily with wholesale rates, and a $200 monthly saving takes three years to recover a $7,000 break cost.
Chasing cashback
A cash incentive is a marketing spend, and lenders recover it through the rate or fees. Compare the total cost over three to five years with the cashback included, not just the headline.
Refinancing above 80% LVR
If the new loan will be above 80% of the valuation, you will pay LMI again. Unless the rate saving is very large, it is usually better to wait until you have paid down the balance or the property has grown in value.
Forgetting about ongoing fees
A package with a $395 annual fee needs a rate that is roughly 0.07% lower on a $600,000 loan just to break even on the fee. Compare comparison rates, not headline rates.
Frequently asked questions
Is it worth refinancing for 0.5%?
Usually, yes. On a $600,000 loan, 0.5% is about $194 a month or $2,330 a year, and typical refinance costs of $1,000 to $2,000 are recovered within the first year. The exceptions are small loan balances under about $200,000, a large break cost on a fixed rate, or an LVR above 80% that would trigger LMI. Run the numbers on our refinance calculator before deciding.
How often can you refinance?
There is no legal limit, and some borrowers refinance every two to three years to stay on competitive pricing. Practically, each refinance costs money and adds an enquiry to your credit file, so doing it more than once every 18 months or so is rarely worthwhile. A better habit is a yearly rate check with your broker, and a full refinance only when the gap justifies it.
Does refinancing hurt your credit score?
A little, and briefly. The new lender's credit enquiry may lower your score by a few points for a short time, and closing an old account can also register. If you are approved and make your repayments on time, your score recovers within months and can end up higher. What does real damage is lodging several applications with different lenders in a short period, so apply once, with the right lender.
How long does refinancing take?
Most refinances settle within two to six weeks. Simple cases with a PAYG borrower, a standard house and digital signing can be done in under two weeks. Delays usually come from missing documents, a valuation that needs a physical inspection, or slow discharge processing at the outgoing lender, which can take up to 10 business days in some cases.
Can I refinance if I'm on a fixed rate?
Yes, but you may pay a break cost. If wholesale rates have fallen since you fixed, the lender charges you the difference for the remaining fixed period. If rates have risen, the break cost can be close to zero. Get a written quote from your lender first, then compare the cost with the savings. In many cases it is better to wait for the fixed term to expire.
What LVR do I need to refinance?
Under 80% gives you the widest choice of lenders and no LMI. Many lenders will refinance up to 90% with LMI, and a few go higher for strong applicants. Above 80% the LMI premium is often several thousand dollars, so the rate saving needs to be large enough to justify it. Your LVR is based on the new lender's valuation, not what you paid for the property.
Talk to GNT Finance
If you want to know whether your current loan is costing you more than it should, we will review it and show you the numbers, and there is no cost to you for our home-loan service in most cases. We work with borrowers across Melbourne's north, from Craigieburn to Epping, and Australia-wide by phone or video. Book a free consultation or call Gorakh on 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.