How to Budget for Refinancing Costs

How Much Does It Cost to Refinance Your Home Loan?

Refinancing typically costs between $500 and $1,500 in direct fees, though this varies depending on your lender and loan structure. You'll pay for things like application fees, valuation costs, and settlement charges. Some lenders waive application fees as part of promotional offers, but discharge fees from your existing lender still apply.

Consider a primary teacher refinancing a mortgage of $450,000. The current lender charges a $350 discharge fee. The new lender waives the application fee but charges $250 for property valuation and $150 for settlement. Total upfront cost sits around $750. If refinancing drops the rate enough to save $200 monthly, the break-even point arrives in under four months.

The calculation changes if you're still within a fixed rate period. Break costs can run into thousands of dollars depending on how much time remains and where rates have moved since you locked in. Lenders calculate this based on the difference between your fixed rate and current wholesale rates, multiplied across the remaining term. If rates have risen since you fixed, break costs are usually minimal or zero. If rates have fallen, expect a bill.

What Are Discharge and Settlement Fees?

Discharge fees are what your current lender charges to release the mortgage when you move to another lender. Most lenders charge between $150 and $400 for this. Settlement fees cover the administrative work of finalising your new loan, typically around $100 to $200.

These costs are unavoidable when you refinance to a different lender. Some borrowers assume they can negotiate these down, but discharge fees are set in the loan terms. The only way to avoid them entirely is to stay with your current lender and negotiate a rate reduction instead, though this approach doesn't always deliver the same savings as switching.

Property Valuation: Why Lenders Charge for It

Lenders need to confirm your property's current value before approving a refinance. Valuations cost between $150 and $300 depending on location and property type. This isn't optional. The lender uses the valuation to calculate your loan-to-value ratio, which determines whether you qualify for the loan amount and rate you're applying for.

If your property has increased in value since purchase, the valuation can work in your favour by improving your equity position. If values have stayed flat or dropped, you may need to adjust your loan amount or provide additional funds to meet lending criteria. In rare cases where the valuation comes in significantly lower than expected, refinancing may not proceed without a larger deposit or accepting a higher rate.

Fixed Rate Break Costs: How the Calculation Works

Break costs exist to compensate your lender for the loss they incur when you exit a fixed rate loan early. The formula compares your fixed rate to the current wholesale rate the lender can earn by lending that money elsewhere. If your fixed rate is higher than what they can now earn, you pay the difference across the remaining fixed term.

In our experience, teachers coming off fixed rates often underestimate this cost. A teacher with two years left on a 2.19% fixed rate might face a break cost of $8,000 or more if current fixed rates sit above 5%. The lender provides a formal break cost estimate when you request a discharge, but by that point you've already committed time to the application. Ask for an indicative figure before you start the refinance process so you know whether it's worth proceeding.

Ongoing Costs: Annual Fees and Account Charges

Some home loans carry annual package fees, usually between $300 and $400. These fees often include extras like offset accounts, redraw facilities, or discounted rates. If your new loan includes a package fee and your old one didn't, factor that into your annual savings calculation.

Offset accounts and redraw facilities don't usually carry separate charges, but some lenders limit how often you can access redraw or charge for additional accounts. Read the fee schedule before signing. A loan that looks cheaper on rate alone might cost more annually once you account for package fees and account restrictions.

When Refinancing Costs Don't Make Sense

Refinancing makes sense when the interest savings exceed the upfront and ongoing costs within a reasonable timeframe. If you're planning to sell within 12 months, paying $1,200 in refinancing fees to save $150 monthly doesn't add up. You'll be $400 out of pocket by the time you settle the sale.

The same applies when break costs are involved. A teacher with 18 months remaining on a fixed rate loan might face $6,000 in break costs to access a rate 0.5% lower. On a $400,000 loan, that rate drop saves roughly $2,000 annually. The break-even point sits three years out, well past the fixed period's natural expiry. In that scenario, waiting makes more financial sense unless there are other reasons to refinance, such as accessing equity for an investment property.

How to Reduce Refinancing Costs

Some lenders offer cashback incentives to cover part or all of your refinancing costs. These typically range from $2,000 to $4,000 and are paid a few months after settlement. The cashback often ties to a minimum loan amount, so confirm eligibility before applying. Keep in mind that a lender offering cashback may not have the lowest ongoing rate, so compare the total cost over two to three years rather than focusing on the upfront incentive alone.

Another option is to ask your current lender for a lower interest rate rather than refinancing. If they agree to match or come close to what you'd get elsewhere, you avoid discharge fees, valuation costs, and application charges entirely. This won't work in every case, but it's worth a conversation before committing to a full refinance.

Making the Decision

The math on refinancing isn't complicated once you have the figures in front of you. Add up discharge fees, valuation costs, settlement charges, and any break costs. Compare that total to your monthly interest saving and calculate how many months it takes to break even. If you'll hold the loan well past that point, refinancing makes sense. If not, wait or negotiate with your current lender instead.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers based on your current loan, your property's equity position, and the rates available to you right now. You'll know within one conversation whether refinancing stacks up or whether staying put costs you less.

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