The short answer
You should consider refinancing when the gap between your current interest rate and the best available market rate exceeds 0.5% — after accounting for switching costs. In June 2025, many Australian borrowers are paying rates 0.8–1.1% above what is available in the market. That gap represents thousands of dollars per year in unnecessary interest.
The 0.5% rule: On a $600,000 loan, a 0.5% rate reduction saves approximately $250/month — $3,000/year. Switching costs of $1,200 are recovered in under 5 months. The rule of thumb holds across almost all Australian loan sizes at current market rates.
The five key triggers
1. The rate gap trigger (most common)
Check what you are currently paying against what is available on the open market. If the gap is 0.5% or more, calculate your break-even point:
- Total switching costs (discharge fee + valuation + new lender fees): typically $800–$1,500
- Monthly saving at the new rate on your loan balance
- Break-even months = total costs ÷ monthly saving
If the break-even is under 24 months, refinancing makes clear financial sense. Most Australian borrowers in 2025 are finding break-even points of 3–8 months.
| Loan Balance | Rate Gap | Monthly Saving | Break-even (on $1,200 costs) |
|---|---|---|---|
| $400,000 | 0.75% | ~$250 | ~5 months |
| $600,000 | 0.75% | ~$375 | ~3 months |
| $800,000 | 0.75% | ~$500 | ~2.4 months |
| $1,200,000 | 0.75% | ~$750 | ~1.6 months |
2. Your fixed rate is ending
Fixed rate loans revert to the lender's standard variable rate — almost always higher than what a competing lender will offer you as a new customer. If your fixed term ends in the next 3–6 months, start the refinancing process now. It takes 3–5 weeks, so waiting until expiry means paying the revert rate for at least a month unnecessarily.
Many Australian homeowners locked in fixed rates in 2021–2022 at historically low rates (1.7–2.5%). Those terms have now expired, rolling onto revert rates of 6.5–7.5%. Switching is the immediate priority for this group.
3. Your LVR has improved
Loan-to-value ratio is one of the primary pricing levers lenders use. Most lenders have rate tiers at 80%, 70%, and 60% LVR — crossing each threshold unlocks a lower rate. Two things improve your LVR over time: property value growth and loan repayment. If you bought in a market that has grown 20–40% since purchase, you may have moved from the 80% to the 60% tier without realising it — a difference of up to 0.4% in rate.
4. You have not reviewed your loan in 18+ months
Australian lenders consistently offer better rates to new customers than to existing ones — the so-called "loyalty tax." A 2023 ACCC report found existing borrowers paid on average 0.58% more than new customers at the same lender. If you have not reviewed your rate in the past 18 months, there is a high probability you are paying a loyalty premium that a broker conversation can eliminate.
5. Your financial situation has improved
A pay rise, a second income, reduced debts, or an improved credit score can all unlock lenders and rate tiers that were not available when you first took out your loan. Lenders assess your current position, not your original application. If your circumstances have improved materially, the rate you can access today may be significantly better than when you first borrowed.
The 2025 rate environment
The Reserve Bank of Australia began its rate-cutting cycle in early 2025, following the extended tightening phase of 2022–2023. As of mid-2025, the cash rate has been reduced multiple times, but lenders have been selective about passing cuts on to existing variable borrowers. New customers consistently receive the full benefit of each cut; existing borrowers often do not.
This creates a widening gap between the rates existing borrowers pay and what new customers access. In a cutting cycle, this gap tends to grow over time — which is a strong argument for acting sooner rather than later when the maths supports refinancing.
Key insight for 2025: The spread between average existing variable rates (~6.5%) and the best available new-customer rates (~5.69%) is approximately 0.8% as of June 2025. On a $700,000 loan, that is $467/month — $5,604/year — in avoidable interest expense.
When NOT to refinance
Refinancing is not always the right move. Avoid it when:
- Your break-even exceeds 3 years — if you plan to sell the property within the break-even period, the switching costs outweigh the savings
- You have significant break costs on a fixed loan — fixed rate break fees can sometimes exceed $10,000, wiping out years of savings
- Your financial position has deteriorated — a recent job change, income reduction, or credit issue may limit your lender options; waiting until your situation stabilises is often smarter
- Your LVR is above 90% — refinancing with very high LVR may trigger LMI, which can cost more than a year of rate savings; calculate carefully
- You are very close to paying off the loan — in the last 2–3 years of a mortgage, the interest component is small; rate savings are modest
How to check your current rate and find the gap
- Find your current interest rate on your most recent mortgage statement or call your lender
- Use our savings calculator to estimate your monthly saving at available market rates
- Compare with rates available through a broker (who sees more options than a single lender comparison)
- Calculate break-even using the formula above
- If break-even is under 24 months: contact a broker immediately
The bottom line
For most Australian homeowners in mid-2025, the question is not whether refinancing would save money — it almost certainly would. The question is whether the savings are large enough relative to the effort and switching costs to act now. For borrowers with loans above $400,000 who have not reviewed their rate in 18+ months, the answer is almost always yes.
A broker assessment takes 30 minutes, costs nothing, and tells you exactly where you stand. There is no risk in finding out.