How to Refinance Your Home Loan in Australia: Step-by-Step
When refinancing makes sense in 2026, how to calculate real savings, break costs on fixed loans, the loyalty tax, and the full step-by-step refinance process.
How to Refinance Your Home Loan: The Step-by-Step Guide Banks Don't Want You to Read
Refinancing your home loan in Australia means replacing your existing mortgage with a new one — either at a different lender or restructured with your current bank — to get a lower rate, better features, or access to equity. In May 2026, 164,162 refinances were recorded in the September 2025 quarter alone, surpassing 2023 record levels. The average owner-occupier loan is $694,000 — at a 0.5% rate difference, that's $206 every month staying in your pocket instead of the bank's.
Should You Actually Refinance? (The Decision First)
Not every borrower should refinance. Here's how to know which camp you're in.
When refinancing makes sense
- Your rate has a 0.5% or bigger gap to current new-customer offers. The RBA's average owner-occupier variable rate for new loans is 5.72% (February 2026). If you're paying 6.2% or more, you're almost certainly paying the loyalty tax.
- Your fixed rate is expiring in the next 3 months. The rate your loan reverts to — the revert rate — is almost always the lender's standard variable rate, which is higher than anything a new customer would accept.
- You've been with the same lender for 2+ years without a rate review. Banks routinely offer their sharpest rates to new customers and quietly leave existing borrowers on higher rates.
When refinancing probably isn't worth it
- Your LVR (loan-to-value ratio) is above 80%. You'll likely trigger Lenders Mortgage Insurance (LMI) again. LMI on a $700,000 loan at 85% LVR can cost $10,000–$15,000+. That wipes years of rate savings instantly.
- You have a fixed loan mid-term. Break costs can run to tens of thousands of dollars. Do the maths first — see the break cost section below.
- You've paid your loan down below 7–8 years remaining. The interest savings on a short remaining term rarely justify the switching costs.
- You refinanced within the last 12–18 months. Refinancing too frequently raises red flags with lenders and can hurt your serviceability assessment.
The mortgage loyalty tax — named and explained
Australia's big lenders operate a two-price system: a sharp rate for new borrowers (to win the business) and a higher "back book" rate for existing borrowers (to extract margin from people who haven't noticed). The RBA has called this out publicly. The gap between new-customer and existing-customer rates averages 0.3%–0.6% across major lenders. On a $694,000 loan, 0.5% costs you $3,470 per year — every year you don't act.
How Much Could You Save by Refinancing?
Here's the worked example. $700,000 loan, 25 years remaining.
| Scenario | Rate | Monthly repayment | Total interest paid |
|---|---|---|---|
| Current loan | 6.00% | $4,507 | $652,100 |
| Refinanced loan | 5.50% | $4,301 | $590,300 |
| Difference | 0.50% | $206/month saving | $61,800 saving |
That $206/month saving is not a rounding error. It's $2,472 per year, $61,800 over 25 years.
Break-even on switching costs
Switching has upfront costs (see the full cost table below). A typical refinance costs $500–$1,500 all-in excluding break fees. At $206/month in savings, you break even in 3–7 months. After that, every month is pure gain.
The break-even formula: Total switching costs ÷ Monthly saving = Months to break even.
If you're planning to sell within 12 months, crunch that number carefully. If you're holding for 3+ years, switching costs are almost always irrelevant.
Step-by-Step: How to Refinance Your Home Loan
Step 1: Know your current loan
Pull out your loan statement or log into your lender's app. Write down:
- Current interest rate (is it variable or fixed? When does it expire?)
- Current balance
- Monthly repayment
- Any annual fees
If you can't find the rate on your statement, call your lender and ask directly: "What is my current interest rate and what rate are you offering new customers today?" Their answer will tell you everything.
Step 2: Check your LVR and equity
LVR = Loan balance ÷ Property value × 100
If your home is worth $1,000,000 and your balance is $720,000, your LVR is 72%. Below 80% LVR means no LMI — you're in the safe refinancing zone. Use a recent bank valuation, CoreLogic estimate, or a sales agent's appraisal to estimate current value.
Step 3: Get competing quotes from at least 3 lenders
Don't ring one lender and accept their counter-offer. Get real quotes. LoanGorilla's panel has 100+ home loan lenders — comparison shopping takes minutes and doesn't affect your credit score at this stage (reading your own credit file or getting indicative quotes does not create an enquiry).
Step 4: Request a discharge form from your current lender
This is the step most borrowers skip — and it's the most powerful one.
Call your current lender and say: "I'd like to request a mortgage discharge form." The moment you say that, you get transferred to the retention team — the people who actually have authority to give you a better rate. Front-line staff cannot usually discount your rate. The retention team can and will, if they think you're serious about leaving.
Do not hint that you might leave. Say you want the discharge form. That triggers the right conversation.
Step 5: Negotiate with your current lender
Once you're talking to the retention team, you have leverage. Tell them the best competing rate you've been offered. Ask them to match or beat it. Be specific: "I've been quoted 5.45% from [Lender X]. Can you do better?"
Banks routinely cut 0.2%–0.5% for borrowers who ask seriously. A five-minute phone call is worth thousands of dollars.
Step 6: If they won't match — apply with the new lender
If your current lender won't compete on rate, pull the trigger on the application with the new lender. A formal application will create a credit enquiry, so only apply when you've decided.
Step 7: Prepare your documents
The new lender will need to verify your identity, income, and the property. See the full document checklist in the section below.
Step 8: Settlement
The new lender handles most of the paperwork. They contact your old lender, discharge the existing mortgage, and register the new one. You don't usually need to do anything for settlement. The process takes 3–6 weeks from application to settlement, though some lenders move faster.
What Does Refinancing Cost?
| Cost item | Typical range | Notes |
|---|---|---|
| Discharge/exit fee | $150–$400 | Charged by your current lender |
| New lender application fee | $0–$600 | Many lenders waive this for refinancers |
| Property valuation | $200–$600 | Some lenders do free desktop valuations |
| Settlement/legal fee | $100–$300 | Usually charged by the new lender's solicitor |
| Break cost (fixed loans) | $0 – $30,000+ | Depends on loan size, rate differential, and time remaining — see below |
| LMI (if LVR >80%) | $5,000–$20,000+ | The biggest hidden trap — avoid if possible |
Total typical cost (variable rate refinance, LVR <80%): $500–$1,500.
Break costs on fixed loans: How they're calculated
Break cost = Wholesale funding rate differential × Remaining fixed term × Remaining balance
In plain English: if wholesale rates have fallen since you fixed, the bank has locked in a certain profit on your loan. Exiting early means you owe them that foregone profit.
Example: You fixed $700,000 at 5.5% for 5 years, and with 3 years remaining wholesale rates are now 4.0%. The bank's profit differential is 1.5% per year on $700,000 for 3 years — roughly $31,500. That's your break cost.
Always call your lender and ask for the exact break cost figure before you do anything. Some lenders provide it online. Some will try to obscure it. Push for the number.
Refinancing When Your Fixed Rate Expires (The "Revert Rate" Trap)
When your fixed term ends, your loan automatically rolls to your lender's standard variable rate — the revert rate. This is almost never competitive. It is frequently 0.5%–1.0% higher than the best variable rates available.
The trap works like this: you fixed at a great rate, you stop paying attention, the fixed period ends, and suddenly you're quietly paying hundreds of dollars a month more with no notification other than a small-print letter.
The 3-month window
Start the refinancing process 3 months before your fixed rate expires. This gives you enough time to:
- Get competing quotes
- Go through the application and approval process (4–6 weeks)
- Avoid landing on the revert rate at all
If your fixed rate expires in August 2026, start in May 2026.
Fixed-to-variable vs re-fixing
With the RBA cash rate at 4.35% in May 2026 — after reversing its 2025 easing cycle — fixed rates have risen again. The decision to re-fix depends on your rate outlook:
- Re-fix if you want certainty and current fixed rates are competitive with the best variable rates.
- Stay variable if you want flexibility and believe rates may fall over your planning horizon.
- Split loan (part fixed, part variable) if you want a hedge.
None of these is wrong — but staying on the revert rate is always wrong.
Can You Refinance to the Same Bank?
Yes. This is called an internal refinance or product switch, and it can make sense.
When to stay with your current lender
- They match the best external rate you've found.
- You don't want the disruption of switching (new account numbers, reauthorising direct debits).
- You're within 12–18 months of a significant loan milestone (like LVR dropping below 80%).
When to switch lenders
- Your current lender won't budge on rate, even when you request a discharge form.
- The new lender offers a material improvement — 0.3%+ after all switching costs are factored in.
- You want features your current lender doesn't offer (offset account, redraw, flexible repayments).
Negotiation tactics that work
- Quote a specific competitor rate — vague threats don't work. Specific numbers do.
- Request the discharge form — signals genuine intent.
- Be pleasant but firm — retention teams have limited authority but will use it if they believe you're leaving.
- Ask what they can offer new customers — then ask why you're paying more.
Refinancing with a Mortgage Broker vs Going Direct
| Mortgage broker | Going direct | |
|---|---|---|
| Access to lenders | 20–100+ lenders on panel | One lender |
| Cost to borrower | Free (broker paid by lender) | Free |
| Time | May take slightly longer to compare | Faster for a single application |
| Best for | Most refinancers — maximises competition | If you already know exactly which lender and product you want |
How brokers are paid
Brokers receive an upfront commission (typically 0.55%–0.65% of loan value) and a trail commission (0.15%–0.2% per year) paid by the lender, not you. Under Australian law, brokers must act in your best interest (the Best Interests Duty). They are required to recommend the most suitable loan, not the highest-paying one.
LoanGorilla brokers have access to 100+ home lenders. The comparison is done for you.
Documents You'll Need
Have these ready before you apply to speed up the process.
Identity:
- Driver's licence or passport
- Medicare card or secondary ID
Income (employed):
- Last 2 payslips
- Most recent group certificate or last 2 years of tax returns (for PAYG)
Income (self-employed):
- Last 2 years' personal and business tax returns
- ATO Notice of Assessment
Existing loan:
- Last 6 months of home loan statements
- Current loan contract or welcome letter (showing rate, term, loan type)
Liabilities:
- Last 3 months of credit card statements (all cards)
- Personal loan statements if applicable
Property:
- Council rates notice (confirms address and valuation)
- Strata levy notice (if applicable)
Frequently Asked Questions
How do I know if I should refinance my home loan?
Compare your current rate to what new customers are being offered at major lenders. If the gap is 0.5% or more, the maths almost always favour switching. The RBA average new-loan variable rate was 5.72% in February 2026 — if you're paying 6.2%+, you are paying the loyalty tax.
How much does it cost to refinance a home loan in Australia?
For a standard variable-rate refinance with LVR below 80%, expect $500–$1,500 in total costs (discharge fee $150–$400, application fee $0–$600, valuation $200–$600). At $206/month in savings on a $700,000 loan with a 0.5% rate cut, you break even in 3–7 months.
What is a break cost and how is it calculated?
A break cost is the fee your lender charges if you exit a fixed-rate loan before the fixed term ends. It's calculated based on the difference between your fixed rate and current wholesale rates, multiplied by the remaining term and outstanding balance. Always request the exact figure from your lender before committing — it can range from zero to tens of thousands of dollars depending on how far rates have moved.
How long does refinancing take in Australia?
From application to settlement, expect 3–6 weeks. Some lenders complete it faster (as little as 2 weeks for straightforward applications). The main delays are property valuation and document verification. Start the process at least 2 months before you need the new loan in place — especially if your fixed rate is about to expire.
Can I refinance if I'm in negative equity?
Negative equity means you owe more than the property is worth (LVR >100%). Refinancing in this position is extremely difficult — most lenders won't approve it. Your options are limited: negotiate a rate reduction with your current lender, make extra repayments to reduce the balance, or wait for property values to recover. Some specialist lenders may help, but rates will be higher.
Will refinancing affect my credit score?
Every formal loan application generates a hard credit enquiry, which temporarily reduces your credit score by a small amount (typically 5–10 points). Multiple applications in a short window look worse than a single one. Getting comparison quotes or rate estimates does not affect your score. Submit one formal application to your preferred lender, not several at once.
Can I refinance to access equity in my home?
Yes. If your property has increased in value, you may be able to refinance to a higher loan balance and withdraw the difference as cash — this is called equity release or a cash-out refinance. The new loan amount must still meet LVR requirements (typically ≤80% to avoid LMI). Common uses include renovations, investment property deposits, or debt consolidation. Be aware: you're converting equity into debt, which increases your repayments and total interest.
What's the difference between refinancing and switching products with the same bank?
An internal refinance (or product switch) keeps you with the same lender but moves you to a different loan product — often with a lower rate. There's no discharge, no external application, and usually no credit check. It's faster and cheaper than a full refinance. The downside: you're limited to your current lender's products and rates, and they know you're unlikely to switch — so they may offer less than a new-customer deal.
Should I use a mortgage broker to refinance?
For most borrowers, yes. A broker accesses dozens of lenders in a single conversation, does the comparison work for you, and costs you nothing (the lender pays the broker's commission). Under the Best Interests Duty, the broker is legally required to recommend a loan that suits you. The main case for going direct is if you've already done your research and know exactly which lender and product you want.
How do I know if my lender is giving me a loyalty discount or ripping me off?
Call your lender and ask two questions: "What is my current interest rate?" and "What rate are you offering new customers on an equivalent loan today?" If the new-customer rate is lower, you are paying a loyalty penalty. Then check external lenders. If your lender won't match the external market rate when you request a discharge form, the "loyalty discount" is zero — and it's time to leave.
Compare Home Loan Refinance Rates on LoanGorilla
LoanGorilla compares 100+ home loan lenders in Australia. See the current best refinance rates, run the numbers on your loan, and connect with a broker who can manage the whole process for you.
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loangorilla.com.au is an Australian Credit Representative (ACR) of Access Lending Group, Australian Credit Licence 531308. Rates and information are current as of May 2026 and subject to change. This guide is general information only and does not constitute financial advice.
Run the numbers yourself
Don't take any of this on faith — plug your own figures into the relevant Australian home loan calculators:
- Refinance Savings Calculator
- Comparison Rate Calculator
- Repayments Calculator
- Extra Repayments Calculator
- Rate Change Stress Test
- Offset Savings Calculator
Related home loan options
Compare current rates and lender lists for the home loan types most relevant to this guide:
- Refinance Home Loans
- Cashback Home Loans
- Fixed Rate Home Loans
- Variable Rate Home Loans
- Offset Account Home Loans
- Split Loan Home Loans