Client calls -- they've seen an ad for a rate 1.2% lower than their current loan. They want to know if it's worth switching. You need the monthly saving, the break-even period and total saving over the loan before they sign anything.
Refinance Break-Even Calculator
Refinance
Discharge fee + application fee + legal (~$800–$2,500 typical)
AU refinancing costs: Discharge fee ($150–$400) · New application/establishment fee ($0–$700) · Legal/conveyancing ($300–$800) · Break cost (variable rate: nil; fixed rate: can be significant)
If on a fixed rate, check your break cost with your lender before proceeding — it can run to thousands.
If on a fixed rate, check your break cost with your lender before proceeding — it can run to thousands.
Reference: ASIC MoneySmart — Refinancing
Results are estimates for planning purposes. Verify with current standards and a qualified professional.
1 What this calculator does
Calculates the monthly saving from refinancing, the break-even period to recover switching costs, and the total interest saving over the remaining loan term. Shows whether refinancing makes financial sense given the switching costs and remaining time on the loan.
2 Formula & professional reasoning
Monthly repayment = Loan x [r(1+r)^n / ((1+r)^n - 1)]
where r = monthly rate, n = remaining months
Monthly saving = Old repayment - New repayment
Break-even months = Switching costs / Monthly saving
Total saving = Monthly saving x Remaining months
Refinancing makes financial sense when the total saving over the remaining loan term substantially exceeds the switching costs, and when the break-even period is short relative to how long you plan to hold the property. Switching costs include discharge fees (current lender), application and valuation fees (new lender), government fees and occasionally break costs on fixed-rate loans. The longer the remaining term, the more compelling the saving from even a small rate reduction.
3 Worked examples
⚠️ Illustrative example only — not clinical or professional instruction.
Basic
1% rate reduction, 22 years remaining
Given: Current balance: $480,000 | Current rate: 7.2% | New rate: 6.2% | Remaining term: 22 yrs | Switching costs: $2,800
Working:
Old repayment at 7.2%: $3,576/mo | New repayment at 6.2%: $3,166/mo | Monthly saving: $410 | Break-even: $2,800 / $410 = 6.8 months | Total saving: $410 x 264 monthsAnswer: Monthly saving: $410 | Break-even: 7 months | Total saving: $108,240
💡 If planning to stay 3+ years, switching is clearly worthwhile. Break-even of 7 months is excellent.
Standard
Smaller rate reduction, high switching costs
Given: Balance: $350,000 | Current rate: 6.8% | New rate: 6.4% | Remaining: 18 yrs | Switching costs: $4,500
Working:
Old repayment: $2,698/mo | New repayment: $2,597/mo | Monthly saving: $101 | Break-even: $4,500 / $101 = 44.6 monthsAnswer: Monthly saving: $101 | Break-even: 45 months (3.7 years) | Total saving: $21,816
💡 A 0.4% reduction with $4,500 in costs takes 3.7 years to break even. Only worthwhile if staying more than 4 years. Consider negotiating costs down or finding a lender with lower fees.
Advanced
5 years remaining -- is refinancing worth it?
Given: Balance: $120,000 | Current rate: 7.5% | New rate: 6.0% | Remaining: 5 yrs | Switching costs: $2,200
Working:
Old repayment: $2,406/mo | New repayment: $2,320/mo | Monthly saving: $86 | Break-even: $2,200 / $86 = 25.6 months | Total saving: $86 x 60 = $5,160 | Net after costs: $5,160 - $2,200 = $2,960Answer: Net saving: $2,960 over 5 years -- marginal
💡 With only 5 years remaining the absolute dollar saving is modest. Refinancing may not be worth the administrative effort for $2,960 net. Consider negotiating the rate with the current lender instead.
4 Sanity check
Typical switching costs
Discharge fee: $150-$350 | New application fee: $0-$600 | Valuation: $0-$600 | Government fees: $250-$500 | Total typical: $1,500-$3,000
Zero-cost refinancing offers typically include costs in a higher rate or cashback -- read the fine print.
Break-even rule of thumb
Under 24 months: refinancing is compelling | 24-48 months: depends on how long you stay | Over 48 months: likely not worth it
Rate difference matters more than break-even alone
A 0.5% saving on $500,000 saves $2,500/yr | A 1.0% saving saves $5,000/yr
Cashback offers
Some lenders offer $2,000-$4,000 cashback -- this can cover switching costs but may come with a rate condition
Factor cashback into the switching cost calculation as a negative cost.
5 Common errors
| Error | Cause | Consequence | Fix |
|---|---|---|---|
| Ignoring the break cost on a fixed-rate loan | Calculating refinance benefit without checking if currently on a fixed rate | Break cost can be $5,000-$40,000+ -- completely eliminating the saving from refinancing | If currently on a fixed-rate loan, contact the lender for a break cost estimate before calculating refinance benefit. Break costs vary with the remaining fixed term and how much rates have moved. |
| Comparing the advertised rate without checking comparison rate | Using the headline interest rate | True cost of the loan is higher due to fees -- the saving is less than calculated | Always compare the comparison rate (which includes fees and charges). A loan with a lower interest rate but high fees may have a higher comparison rate than the current loan. |
| Refinancing and extending the loan term simultaneously | Accepting a lower repayment by resetting to a 30-year term | Pay far more total interest even at a lower rate, because the loan runs for much longer | When refinancing, keep the same remaining term or shorter. Extending from 20 remaining years to 30 years at a lower rate may cost more total interest, not less. |
| Not negotiating with the current lender first | Going directly to a new lender without attempting to negotiate | Incur switching costs when the current lender would have matched the rate | Contact your current lender first with the competing offer. Many will match or beat the rate to retain the customer, saving you the switching costs entirely. |
6 Reference & regulatory links
7 Professional workflow
Common tools used alongside this one:
Mortgage Affordability Calculator
After refinancing reduces repayments, re-run Mortgage Affordability to see what you could borrow if upgrading
→
Negative Gearing Calculator
If refinancing an investment property, use Negative Gearing to see how the new rate affects tax deductibility and cash flow
→
Landlord Cash Flow Calculator
Use Landlord Cash Flow to see the impact of the new rate on investment property monthly cash flow
→