The real cost of refinancing: 7 questions to ask before you sign

Refinancing is one of the easiest wins in personal finance — when it's done right. When it's done on autopilot, with the headline rate as the only lens, it can quietly cost more than the rate you saved.

What 'cost' actually means in a refinance

The total cost of a refinance is the sum of every fee you pay, every saving you give up, and every ongoing difference over the period you'll hold the new loan. Most brokers quote the rate, almost none quote the total.

The 7 questions to ask before you sign

1What is the discharge fee on my current loan, and is there an early-exit break cost?
2Does the new lender offer a refinance package that waives valuation, legal and application fees?
3What is the comparison rate — not the headline rate — over the same period as my remaining fixed term?
4Will the new loan's monthly repayment genuinely drop, or is it being held flat by extending the loan term?
5Are there ongoing fees, package fees or annual fees on the new loan I will pay for the life of the loan?
6If the new loan is fixed, what is the break cost if I need to exit early for any reason?
7Does the refinance package include features I am currently paying for elsewhere (offset account, redraw, no application fee on top-ups)?

A simple total-cost framework

Strip the noise. Three numbers tell you almost everything.

All-in upfront cost (discharge + new-loan fees + valuation + legal + settlement).
Monthly repayment × months held — the new loan's total interest you will actually pay.
Total of the two. Subtract from the equivalent total on your current loan. The difference is the real outcome.

When a specialist refinance makes sense

Refinancing through a specialist or non-bank lender is most useful when the mainstream bank credit model is the constraint — for example, complex income, a recent credit event, or a loan structure the majors don't offer. The trade-off is usually a slightly higher rate, in exchange for approval and flexibility the bank won't give.

Want a second opinion on a refinance? Start The Qualifier

Key facts cited

Discharge fees on mainstream variable home loans in Australia typically range from $0 to $400, but fixed-rate loans can carry early-exit break costs that run into the thousands if refinanced inside the fixed period.

Source — Australian Securities & Investments Commission (ASIC) — MoneySmart, 'Refinancing your home loan'

Valuation, legal and settlement fees on a refinance commonly add $500–$2,500 to the upfront cost, and several lenders now bundle or waive these in competitive refinance campaigns.

Source — Reserve Bank of Australia (RBA) — Submission to the Inquiry into the Home Loan Serviceability Measures

Under the National Consumer Credit Protection Act 2009, lenders and brokers must provide full disclosure of fees, charges and comparison rate before a credit contract is signed. Nothing on a refinance quote should be undisclosed at lodgement.

Source — National Consumer Credit Protection Act 2009 (NCCP Act), Section 123 — Disclosure requirements

Frequently asked questions

What fees should I expect when refinancing?

Common fees include discharge fees on your existing loan ($0–$400+, more on fixed), application fees on the new loan ($0–$1,500), valuation ($0–$600), legal ($300–$1,500), and settlement fees. Always ask for a full fee schedule before committing.

Is refinancing worth it for a small rate cut?

Generally no. If the rate saving is under 0.30% and you'll be in the new loan for under three years, the upfront fees usually outweigh the savings. Run a 3-year total cost comparison, not just the monthly payment.

Can I refinance if I'm on a fixed rate?

Yes, but you may owe break costs if you exit before the fixed term ends. Break costs are calculated by your lender and disclosed on request. They can be substantial on large balances in a rising-rate environment.

How do I compare refinance offers properly?

Three numbers tell you almost everything: (1) all-in upfront cost (discharge + new-loan fees + valuation + legal + settlement); (2) monthly repayment × months held; (3) the sum of those two. Subtract from the equivalent total on your current loan. Always compare on the same remaining term and include the comparison rate, not the headline rate.

Does refinancing reset my loan term back to 25 or 30 years?

It can, depending on the lender and the structure you choose. A refinance that drops your monthly payment by extending the term from 25 to 30 years is not a saving — you pay less per month but more total interest. Always ask the lender to write the new loan with your existing remaining term where possible.

Can I refinance with bad credit?

Yes, through specialist lenders — that's a major use case. The same underwriting logic as a purchase applies: current conduct, savings pattern and the strength of the new application. Specialist refinance lenders actively price bad-credit files; mainstream banks usually decline.