How the refinance calculator works
Refinancing swaps your current home loan for a new one, usually at a lower rate. This calculator works out the repayment on your current rate and the repayment on the new rate, using the same loan balance and the same remaining term, so the only thing that changes is the rate. The difference between the two repayments is your monthly saving. Multiply that across the remaining term and you get the interest you save over the life of the loan, before any costs.
Why the break-even point matters
Switching is not free. Your current lender usually charges a discharge fee, the new lender charges an application or settlement fee, and there can be a valuation fee on top. The break-even point is the switching costs divided by the monthly saving, and it tells you how many months it takes to earn those fees back. Past that point the saving is yours to keep. If you might sell or switch again before you reach it, the move may not be worth it.
When a lower rate is not worth it
A lower rate looks good on the ad, but it only helps if the saving clears the cost of getting it. If the discharge, application and valuation fees add up to more than you save over the remaining term, refinancing leaves you worse off. Fixed-rate loans can also carry a break cost that dwarfs the other fees. The rule to remember is simple: a lower rate is only worth it when the fees do not eat the savings, so always check the break-even point before you switch.
A worked example
Take a $500,000 balance with 25 years left, currently at 6.5% p.a. The repayment is about $3,376 a month. Refinance to 5.9% over the same term and the repayment drops to about $3,191, a saving of roughly $185 a month. With $1,000 of switching costs, the break-even point is about $1,000 ÷ $185, or under six months. Over the full remaining term the lower rate saves around $55,000 in interest before costs, so once you are past the break-even point the switch is clearly ahead.
Frequently asked questions
How do you calculate refinance savings?
Work out the repayment on your current rate and the repayment on the new rate, using the same loan balance and the same remaining term. The gap between them is your monthly saving. Add up that saving across the remaining term to get the interest you save, then subtract the switching costs to see the real gain. This calculator does all of that as soon as you enter your figures, and shows the break-even point too.
What is the break-even point on a refinance?
The break-even point is how long it takes for the monthly saving to pay back the cost of switching. Divide the total switching costs by the monthly saving. On $1,000 of fees with a $185 monthly saving, that is about six months. If you plan to keep the loan well past the break-even point, refinancing usually pays off. If you might sell or refinance again before then, the fees can outweigh the saving.
What is the 2% rule for refinancing?
The 2% rule is an old rule of thumb that says refinancing is worth it only if the new rate is at least 2 percentage points below your current rate. It is a rough guide, not a hard rule. On a large loan balance, even a 0.3 to 0.5 percentage point drop can save real money once you account for the fees. The honest test is the break-even point: if you clear the switching costs quickly and stay in the loan, a smaller rate cut can still be worth it.
How much does it cost to refinance a home loan in Australia?
Switching costs usually add up to a few hundred to around $1,000. Common ones are a discharge fee from your current lender to close the loan, an application or settlement fee from the new lender, and a property valuation fee if it is not waived. Fixed-rate loans can also charge a break cost, which can be much larger. Enter the fees you expect above and the calculator folds them into your break-even and net saving.
Is refinancing worth it for a small rate drop?
It can be, because the saving depends on the loan balance as much as the size of the rate cut. On a large balance, a small drop in rate moves a lot of interest over the remaining term. The thing to check is whether the saving clears the switching costs in a reasonable time. A lower rate is not worth it if the discharge, application and valuation fees add up to more than you save.
What should I check before refinancing?
Compare the new rate against your current rate on the same balance and remaining term, then add every switching cost, not just the headline rate. Watch for break costs on a fixed-rate loan, lenders mortgage insurance if your equity is under 20 percent, and any ongoing account fees on the new loan. Also decide whether you will keep the term the same or reset it, because resetting to a longer term lowers the repayment but can raise the total interest.
This tool is a guide, not financial advice.
