Refinancing break-even: fees, repayments and loan term

Start with the loan you actually have left

Collect the current balance, remaining term, rate, repayment, fees and any fixed-period conditions. The original loan amount and original thirty-year term may no longer describe the debt. An old repayment can also differ from the payment required under current arrangements.

Then request a complete alternative quote on the same balance and remaining term. MoneySmart’s switching guidance specifically warns about inadvertently extending the loan. A comparison is much easier to interpret when only the rate and relevant fees change at first.

Record why you might refinance: lower borrowing cost, a needed feature or a different arrangement. The purpose affects what should be compared. A feature-led change may be worthwhile to investigate, but its benefit should not be invented as extra investment return in a cost chart.

Source: MoneySmart: switching home loans

Translate the rate change into a consistent payment comparison

For a fictional $400,000 loan with twenty years remaining, constant 6.5% interest and monthly principal-and-interest payments give about $2,982.29 a month. At 6.0% over the same twenty years, the payment is about $2,865.72. The difference is about $116.57 a month.

These are standard amortisation illustrations using annual rate divided by twelve, no fees and unrounded calculations internally. They are not current lender offers or a forecast of rates. Actual daily-interest methods and repayment settings can differ.

A headline “0.5% cheaper” becomes more useful when expressed in dollars under a stated term. But the payment difference still mixes interest and principal timing. It should not automatically be described as the precise interest saved every month.

Use a simple break-even as a screening calculation

Suppose fictional switching costs total $2,400 and the consistent monthly cash-flow improvement is $116.57. Dividing costs by the unrounded payment difference gives about 20.59 months. Rounding up suggests approximately 21 monthly periods to recover those costs under that simplified cash-flow view.

If the household expects to sell or refinance again within twelve months, that initial result raises a question about whether the switch has enough time to pay for itself. It does not prove that it will be unsuitable; the final assessment needs balances, fees and actual terms.

A simple division assumes the saving continues unchanged and ignores the precise value of different future balances. Use it to identify cases needing closer examination rather than presenting it as a guaranteed date on which the transaction becomes profitable.

List switching costs rather than guessing a standard allowance

MoneySmart identifies possible break, discharge, application and internal switching charges, along with other relevant costs. LMI can also affect a refinance in some circumstances. Ask both lenders for the charges that apply and check any government or registration costs through the appropriate process.

Keep a quote date beside fixed-rate break costs, because the amount can change. A cashback or fee waiver may have eligibility, payment timing or other conditions. Record it only on the basis of the actual offer and do not assume every advertised incentive will be received.

If costs are added to the new loan, include the larger balance and the interest generated by financing them. Treating them as zero upfront costs without recognising the debt makes the alternative look cheaper than it is.

Source: MoneySmart: switching home loans

A longer term can create an attractive but misleading payment

Using the same fictional $400,000 at 6.0%, extending repayment to thirty years lowers the monthly payment to about $2,398.20. That looks much cheaper than $2,865.72 over twenty years. However, the constant-rate, no-fee total interest is about $463,352.76 over thirty years versus $287,773.82 over twenty.

The difference is about $175,578.94. This is not an expected outcome for a variable-rate loan; it isolates the effect of the chosen term under one fixed assumption. A lower monthly payment can be a cash-flow change without being a lower total cost.

If you plan to keep paying the old amount, state that explicitly and check the lender permits the extra payments without relevant charges. A comparison should model the intended behaviour instead of assuming both the lower payment and faster repayment happen automatically.

Compare what remains at the date that matters

If you expect to move in five years, look at payments, switching costs and remaining loan balance at that point. A loan that looks cheaper over a full thirty-year term may have a different result over the period you actually expect to hold it.

Keep the exit date the same for both paths. Subtract the remaining debt when comparing net positions, and include any relevant exit cost. Do not compare twenty years of payments on the current loan with only five years on the alternative.

This is particularly important if the new term is longer or fees are financed. The lower payment may leave more debt outstanding. A fair worksheet makes both the near-term cash-flow relief and the later liability visible, so the household can understand the trade-off.

Review features and access without losing the cost comparison

An offset, redraw facility or flexible repayment option may matter to the household. Check that the proposed product actually provides the required feature and what it costs. When changing loans, confirm the offset linkage and payment arrangements rather than assuming the old settings transfer unchanged.

A loan with a lower rate but unsuitable access conditions may not meet the same need. Conversely, paying for a feature that is rarely used can erode a small rate saving. Record the expected average balance or use that justifies the feature.

Approval is another separate issue. An online quote does not establish property valuation, borrower eligibility or that the old loan can be discharged on the intended date. Keep outstanding conditions visible while comparing costs.

Source: MoneySmart: choosing a home loan

Use the official switching tool for the detailed scenario

MoneySmart’s mortgage switching calculator is designed for comparing a current and proposed loan with switching costs. Check its assumptions and enter actual figures. Elaris’s loan tool estimates a conventional monthly repayment and higher-rate scenario; it does not independently calculate a complete refinance transaction.

Keep a worksheet with the same remaining term, fees, financed charges, feature differences and likely holding period. Ask the lender to explain any mismatch between its quote and your model. Update the figures if the rate or settlement date changes.

If repayments are already difficult, refinancing is not the only pathway. Contact the lender early about available hardship options and consider appropriate financial counselling. A new loan that depends on unaffordable repayments or unverified savings does not solve the underlying cash-flow problem.

Before submitting applications, distinguish an information request from a formal credit application and understand the provider's process. Keep the comparison focused on verified offers rather than accumulating repeated applications solely to generate a rate table. The site does not access your credit file or negotiate a rate. Save the current lender response and the alternative quote together so any decision can be traced to the same dates and assumptions.

Plan the transition cash as well as the long-term result. A hypothetical $2,400 switching bill payable now is not funded by a $116.57 improvement that arrives gradually over later months. If paying the fee removes the reserve for an approaching essential bill, the immediate budget needs another solution. Keep the fee due date, any confirmed incentive payment date and the first new repayment on one calendar. A favourable total-cost calculation does not resolve a short-term cash shortage.

Sources: MoneySmart: switching home loans · MoneySmart: debt consolidation and refinancing · MFAA: refinance calculator and holding-period comparison

FAQ: Is switching cost divided by saving enough?

It is a useful screening estimate when the saving is consistently defined. It does not fully account for different loan balances, changing rates, financed fees or a term extension. Review those elements before treating the quotient as the actual economic break-even date.

FAQ: Does a cashback make refinancing free?

Only compare the confirmed incentive with all relevant costs and conditions. It may arrive after fees are due or be unavailable in your circumstances. Financing a fee still creates debt, and a higher ongoing cost can outweigh a one-off payment over the holding period.

FAQ: Should I restart a thirty-year term?

That is a separate affordability and total-cost decision. A longer term can reduce the required payment while increasing interest under the same rate assumptions. Compare a like-for-like remaining term first, then examine any extension with its consequences clearly stated.

FAQ: Can I just ask my current lender for a better rate?

You can request a review and compare any written offer with alternatives. Check fees, features and the remaining term rather than focusing on the rate alone. An internal change may have different costs from a full refinance, but its terms still need verification.

Sources and editorial notes

Sources checked 24 October 2026. Worked examples are fictional illustrations. Rules, eligibility and product terms can change; use the official source for your circumstances.

• MoneySmart: switching home loans ↗
• MoneySmart: choosing a home loan ↗
• MoneySmart: debt consolidation and refinancing ↗
• MFAA: refinance calculator and holding-period comparison ↗

General information, not an individual financial or legal assessment. AI-assisted drafting with source checks; independent professional review has not been completed. How we prepare our guides · Suggest a correction