How Do I Work Out Whether the Long-Term Benefit of Refinancing Outweighs the Break Cost Today?
If your break-even is 8 months and you’re planning to hold the loan for 5 years, the total benefit over that period is substantial. If break-even is 30 months and you’re selling in 2 years, the refinance costs you money.
The comparison comes down to one number: the break-even point in months. Divide total switching costs (including break cost) by monthly interest saving. That’s how many months until you’re ahead.
A Worked Example
Break cost: $4,000. Other switching costs: $800. Total: $4,800. Rate saving: 0.45% on $550,000 = $2,475/year = $206/month. Break-even: $4,800 ÷ $206 = 23 months. Over a 5-year hold, total saving after costs: approximately $12,000–$15,000.
Factors That Improve the Long-Term Case
- Larger loan balance — the rate saving is applied to a higher number
- More years remaining — more months to capture the monthly saving
- A better loan structure, not just a lower rate — offset account access, repayment flexibility
- A lower LVR now enabling better pricing — if your equity has grown, you may qualify for a better tier
The Comparison Rate Trap
Always calculate based on the comparison rate, not the advertised rate. The comparison rate includes fees and charges over a 25-year term. Two loans with the same headline rate but different fees will have different comparison rates.
You may wish to speak with a licensed mortgage broker to assess your personal circumstances.
This is general information only. Refinancing decisions depend on individual circumstances. Speak with a licensed mortgage broker before taking any action. All loans are subject to lender approval.
Sources: ASIC MoneySmart, Refinancing Your Home Loan 2025; National Consumer Credit Protection Act 2009 (comparison rate requirements); RBA, Housing Finance Data 2025.
