Should I Refinance After a Rate Rise?

The Three Things That Determine Whether Refinancing Makes Sense

Forget the headlines. Forget what your neighbour did. Whether it is worth refinancing now comes down to three factors:

1. Your equity position. This determines what rates you can actually access.
2. The rate differential after costs. The gap between your current rate and what is available, minus every fee involved in switching.
3. Your break-even timeline. How long it takes for the savings to outweigh the costs.

You generally need at least a 0.30% to 0.50% rate reduction to justify switching costs over a two to three year timeframe. Anything less and the maths gets tight. Let's look at each factor in detail.

Factor 1: How Much Equity Do You Actually Have?

Your equity position is the first gate. It determines whether you can access competitive rates at all.

Lenders use a metric called your loan-to-value ratio (LVR). The magic number is 80%. If your LVR is at or below 80%, you are in the sweet spot for the best available rates.

If your LVR is above 80%, refinancing may trigger Lenders Mortgage Insurance (LMI). This is a one-off premium that protects the lender, not you, and it can add thousands of dollars to your loan. In many cases, LMI costs wipe out any rate savings entirely, making the switch uneconomical.

Here is the good news. If your property has grown in value since you bought it, you may have more equity than you think. The new lender will require a property valuation, which typically costs $200 to $400 and is usually paid by the borrower. That valuation could reveal you have crossed the 80% threshold without realising it.

If your LVR is above 80%, refinancing is unlikely to stack up financially. If it is below 80%, move on to factor two.

You can check your refinancing position with our free calculator to get a quick read on where you stand.

Factor 2: What’s the Real Rate Gap After Costs?

The advertised rate is not the full picture. You need to look at the comparison rate, which factors in fees and charges over the life of the loan. This gives you a more honest view of what you will actually pay.

Beyond the rate itself, switching comes with real costs. Here is what to budget for:

• Discharge fee from your current lender: $150 to $400
• Settlement or establishment fee with the new lender: $300 to $600
• Application fee: $0 to $600 depending on the lender
• Valuation fee: $200 to $400
• Break costs (fixed rate borrowers only): potentially thousands of dollars

If you are on a fixed rate, your lender will charge break costs based on the difference between your fixed rate and current wholesale rates, multiplied by the remaining fixed term. On a large loan with years left on a fixed term, this figure can run into the tens of thousands. It is the single biggest factor that can make refinancing a losing proposition for fixed rate borrowers.

Always calculate the total cost of switching, not just the rate gap. Add up every fee, subtract it from your projected savings, and then move to factor three.

Factor 3: How Long Until You Break Even?

This is where the decision gets concrete. Let's run two worked examples.

Example 1: The switch makes sense. You have a $600,000 loan at 6.45%. A new lender offers 5.95%. Total switching costs come to approximately $1,500. Your monthly saving is roughly $185. That means you break even in about 8 months. Over three years, your net saving after costs is approximately $5,160. That is real money back in your pocket.

Example 2: The switch does not stack up. Same $600,000 loan, but the rate gap is only 0.20%. Your monthly saving drops to roughly $65. Break-even stretches out to 23 months. If you are planning to sell within two years, the saving is negligible or negative once you factor in the hassle and the credit enquiry impact on your credit score.

One more thing to factor in: a refinancing application triggers a credit enquiry, which temporarily affects your credit score. If you have recently applied for credit or plan to soon, this matters.

If your break-even is longer than two years, think carefully about whether your circumstances might change before then. A job move, a growing family, or plans to sell can all shift the equation.

The Cashback Trap: Why a $2,000 Sweetener Can Cost You More

Cashback offers are everywhere right now. A lender dangles $2,000 to switch, and it feels like free money. Here is how the maths works. Say you take a $2,000 cashback, but the rate attached to that offer is 0.15% higher than the best available rate elsewhere. On a $500,000 loan, that 0.15% costs you approximately $750 per year in extra interest. After 2.5 years, the cashback is gone and you are paying more than you needed to for the remaining life of the loan.

Always compare the total cost over two to three years, not the upfront sweetener. A lower rate with no cashback will almost always beat a higher rate with a cashback over any meaningful timeframe. The ASIC Moneysmart comparison tool can help you model this.

When Should You Refinance?

Knowing when to refinance your home loan in Australia comes down to these conditions aligning in your favour. Based on the three factors above, refinancing is likely worth exploring when:

• Your current rate is 0.50% or more above what is available for your loan type and LVR
• You have 20% or more equity in your property
• You are on a variable rate with no break costs to worry about
• You plan to stay in your home for three or more years
• Your current lender will not match a better offer when you ask

With access to 40+ lenders, a broker can surface deals you simply will not find comparing four or five banks online. At Stryve, we also offer lender commission transparency, so you know the recommendation is based on your interest, not ours. For other reasons refinancing might be worth exploring, we have a deeper guide for borrowers earlier in their research. If you are self-employed, take a look at refinancing options for self-employed borrowers.

Refinancing Might Not Make Sense If...

Honesty matters here. There are clear scenarios where the refinance or stay with current lender question has a straightforward answer: stay.

• You have less than 20% equity and would trigger LMI
• You are locked into a fixed rate with significant break costs remaining
• You plan to sell your property within one to two years
• The rate gap is less than 0.30% after accounting for all switching costs
• You recently refinanced and another credit enquiry would hurt your score

In these situations, the smarter move is often to call your current lender and negotiate. Ask them to match or beat the rate you have been quoted elsewhere. Many lenders have retention teams whose sole job is to keep you, and they have discretion to offer better pricing.

A good broker will tell you when not to refinance. That is the difference between advice and a sales pitch.

Talk to a broker who will tell you honestly whether switching is worth it.

How to Figure Out Your Next Move

Here is a simple three-step action plan:

1. Check your current rate and loan balance. Log into your lender's app or call them. Know exactly what you are paying.
2. Estimate your equity position. Compare your loan balance to recent sales of similar properties in your area. This gives you a rough LVR.
3. Talk to a broker who can run the numbers across 40+ lenders. A good broker will model the break-even for your specific situation and tell you straight whether switching saves you money or not.

Before you switch, it is also worth comparing refinancing against negotiating with your current lender. Many borrowers do not realise that simply calling your existing lender with a competitor's offer can result in a rate reduction without the hassle or costs of switching. A broker can help you decide which approach gives you the better outcome.

We are here if you want someone to run the numbers for you. No hidden fees, and sometimes the honest answer is “stay where you are.” That is fine by us.

See what you could save with a personalised rate comparison.

Frequently Asked Questions

Should I refinance after a rate rise?

Whether you should refinance after an interest rate increase depends on three factors: your equity position (LVR at or below 80%), the rate differential after all switching costs, and your break-even timeline. You generally need at least a 0.30% to 0.50% rate reduction to justify switching costs over a two to three year timeframe.

What is the break-even period for refinancing?

The break-even period is how long it takes for your monthly savings to outweigh the total costs of switching lenders. For example, on a $600,000 loan with a 0.50% rate reduction and $1,500 in switching costs, the break-even is about 8 months. If the rate gap is only 0.20%, break-even stretches to 23 months.

Are cashback refinancing offers worth it?

Cashback offers can cost you more in the long run. A $2,000 cashback with a rate 0.15% higher than the best available rate costs approximately $750 per year in extra interest on a $500,000 loan. Always compare the total cost over two to three years, not the upfront sweetener.