A lower headline rate is the easiest sales pitch in finance. The reality is more nuanced. Refinancing can be one of the most powerful financial decisions a household makes. It can also be a quiet wealth-eroder when the wrong factors are weighed.
The conversation almost always starts the same way. A friend just refinanced and saved 0.5%. The bank is advertising a better rate. The cashback offer caught your eye. So you start running the numbers in your head, looking at the rate gap, and the maths feels obvious.
It usually isn't. Refinancing has half a dozen moving parts and the rate is just one of them. Here is the framework Charter Finance walks clients through.
Start with what you actually pay, not what the rate says
The headline rate is one number. Your comparison rate includes most fees and gives you a more honest picture, though it still strips out one-off costs and discharge fees. Before you can decide whether refinancing makes sense, you need three things on paper:
- Your current effective rate after any package discount or pricing adjustment
- The full cost stack of switching: discharge fee, registration fees, application fee, and any break costs if you're on a fixed rate
- The rate the new lender is genuinely offering you in writing, not the marketed rate, and the comparison rate that goes with it
Most refinances we see saved between 0.3% and 0.7% on the rate. That sounds modest, but on a $750,000 loan, even 0.3% is roughly $2,250 a year. Whether that justifies switching depends entirely on what's underneath.
The four scenarios where refinancing is usually the right call
1. Your loan has fallen well behind market rates
This is the classic case. If your bank has not moved you in line with current pricing, particularly after the rate cycle since 2022 to 2024, the gap can easily be 0.5% or more. Lenders rely on inertia. The "loyalty tax" is real and well documented. A simple rate request to your existing lender often closes part of the gap, but not all of it.
2. Your circumstances have improved
Your loan-to-value ratio (LVR) has dropped below 80%. Your income has grown. The property has appreciated. Each of these moves you into a tier of pricing you may not have qualified for at origination. Lenders price risk in bands, and dropping a band is often worth a discount that compounds across the remaining term.
3. The structure no longer fits
The loan was set up for who you were five years ago, not who you are now. Maybe you started with a basic variable, and you're now sitting on a meaningful offset balance with no offset feature. Maybe you're running an investment property and the loan isn't structured to maximise deductibility. Structural refinances often deliver more than rate refinances do.
4. You want to consolidate non-deductible debt
Credit card balances, personal loans, novated lease residuals: these typically run at rates anywhere from 8% to 22%. Pulling them into a refinanced home loan at 6% can save thousands a year. The cautionary note: this only works if you don't immediately rebuild the balances. We see clients consolidate, get the relief, and then put the credit card back to work. The compounding then runs in reverse.
Refinancing extends the loan term back to 30 years. If you've been paying down for ten years and refinance into another 30-year loan, you've added a decade. The lower rate may save interest, but the longer term gives some of it back.
The four scenarios where refinancing usually isn't worth it
1. The break costs swallow the savings
If you're on a fixed rate, breaking it triggers an economic loss calculation that can run into the tens of thousands. The rate saving has to clear a very high bar before refinancing makes sense. We've seen quotes where the break cost alone wipes out three years of rate savings. Always get the break cost in writing before going further.
2. The rate gap is too small
A 0.1% to 0.2% improvement on a standard loan rarely justifies the time, paperwork, and switching cost. The all-in cost of changing lenders typically sits around $700 to $1,500 in fees alone, before broker time and disruption. The rate saving needs to recoup that quickly, and a thin gap takes years to do so.
3. You're about to sell, restructure, or borrow again
Refinancing now and selling in 18 months means you've paid all the switching costs to capture a fraction of the savings. Same logic applies if you're about to apply for a top-up, an investment loan, or a construction loan. Better to bundle the strategy and refinance once with the bigger picture in view.
4. The cashback is doing all the work
Cashback offers (usually $2,000 to $4,000) are designed to make a marginal refinance look attractive. If the cashback is the main reason it stacks up, you're being paid to switch into a worse long-term position. Rate is permanent. Cashback is a one-off.
The bigger question: is rate even the right lever?
Sometimes the answer is yes. Sometimes the more powerful move is restructuring within your existing lender, increasing your offset balance, or sequencing extra repayments more aggressively. We model all three options before recommending anything. A 0.4% rate saving might net $9,000 over five years. A structural change to push more cash through offset might net $15,000 over the same period, with no switching cost.
The right answer depends on what you're actually trying to achieve. If you don't know what you're trying to achieve, that's the conversation to have first.