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When Should You Refinance a Home Loan (and When Not To)?

Refinancing can save real money, but only when the numbers line up, and sometimes you can't switch at all. Here's how to tell which situation you're in before you apply.

By Eleanor Hayes · · 8 min read

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When to refinance · 2026

Only if the saving beats the cost

and you'll hold the loan long enough to recover it

and you can pass a new lender's assessment

about 16% of existing loans couldn't pass (RBA, Apr 2023)

Source: ASIC MoneySmart; RBA.

A lot of refinance advice is written to sell a switch. This one isn't. Refinancing can save you real money, but only when the numbers line up, and there are times when switching costs you more than it saves, or when you can't switch at all. Here's how to tell which situation you're in before you apply.

This is a decision guide, not personal advice. It gives you the test to run and the traps to check for, so you can take a clear question to your lender or broker. For the mechanics of how a switch actually works, see how refinancing works.

Key takeaways
  • Refinance when the saving clearly beats the switching cost and you'll hold the loan long enough to recover it (ASIC MoneySmart).
  • Don't, if the costs can't be recovered: a small remaining balance, selling soon, an LMI re-trigger, or a fixed-rate break fee.
  • The catch: you may not qualify. As at the RBA's April 2023 review, around 16% of existing loans couldn't pass a new lender's serviceability test.
  • Ask your current lender first. Many owners who can't switch elsewhere can still negotiate a better rate where they are.

When should you refinance?

Refinance when the benefit clearly outweighs the cost over the time you'll keep the loan. That's the core of it, and it's ASIC MoneySmart's own framing: "before you switch, make sure the benefits outweigh the costs" (ASIC MoneySmart, 2026). One more thing decides whether you can act on it: whether you'd pass a new lender's assessment.

Three situations tend to pass that test. Your current rate is well above what new borrowers are being offered. You're coming off a fixed term and about to roll onto a higher revert rate. Or your current loan lacks a feature you now need, like an offset account. In each case the switch buys you something concrete.

The part that decides it is the recovery period: the switching cost divided by the monthly saving tells you how many months until you're actually ahead. A short recovery is a strong sign and a long one a reason to look harder, but treat it as a first screen. A longer term can lower the monthly figure without making the loan cheaper, so compare the two loans like-for-like. We set out the full cost of refinancing separately, because the fees are where a "lower rate" quietly turns into no saving at all. MoneySmart's mortgage switching calculator runs the recovery maths for you.

Should you refinance? Run the test in order. Three screens before you apply · each “no” sends you sideways, not forward 1. Does the saving beat the switching cost? No → not yet. The costs would eat the saving. 2. Will you keep the loan long enough to recover? No → selling soon or a small balance? Skip it. 3. Can you pass a new lender’s assessment? No → ask your lender, a non-bank, or a broker. Yes to all three? Worth a closer look. Still ask your current lender to match a better rate first. Framework: ASIC MoneySmart (benefits must outweigh costs) and APRA serviceability rules.

The refinance decision, in order: the saving must beat the cost, you must hold the loan long enough to recover it, and you must be able to qualify.

When should you NOT refinance?

Don't refinance when you can't recover the switching cost, or when a hidden charge cancels the saving. The lower rate on the ad is not the whole story, and four situations turn a switch into a loss.

The first is timing. If you plan to sell soon, or your remaining balance is small, the recovery window may never arrive: you pay the switching costs but move on before the lower rate pays them back. The second is a loan-to-value ratio above 80%. Refinancing with less than 20% equity can trigger lenders mortgage insurance (LMI), a one-off premium that protects the lender, not you. MoneySmart warns it "can increase the cost of switching and outweigh the savings you'll get from a lower interest rate" (ASIC MoneySmart, 2026).

The third is a fixed-rate loan, where switching early can mean a break fee. The fourth is the quiet one: resetting the term. Rolling what's left of your loan back out to a fresh 30 years lowers the monthly repayment but raises the total interest you pay. That's why MoneySmart says to "negotiate a loan with a similar length to your current one" (ASIC MoneySmart, 2026). None of these means never switch. They mean do the maths first, and count the costs in full.

You might not be able to refinance, even when it looks worth it

Here's the part a lender's ad rarely spells out: you can have every good reason to switch and still be knocked back, because refinancing means passing a new lender's full assessment. As at the RBA's April 2023 Financial Stability Review, around 16% of existing loans could not meet the serviceability tests lenders apply to new and refinanced loans (RBA, 2023). The RBA estimated that would rise to around 20% if rates went up another percentage point.

The mechanism behind that is the serviceability buffer. Lenders assess you at a rate well above the one you'd actually pay. APRA confirmed in June 2023 that "some borrowers who are seeking to refinance with another lender may no longer meet standard loan criteria" (APRA, 2023). That can be because they can't clear the buffer, hold less equity after price falls, or have had a change in circumstances. It's the 3% serviceability buffer at work, and it applies to the banks and credit unions APRA regulates, not to non-bank lenders. That gap is why an owner who fails a bank's test can sometimes still refinance elsewhere. A non-bank still assesses your ability to repay, though, and may price the extra risk into a higher rate, so it isn't a guaranteed or cheaper route.

If this might be you, check where you stand before you apply, because how a lender assesses your borrowing power decides the outcome, not the rate on the billboard. knest.ai's Home Loan Expert helps you map your position before you apply. A licensed mortgage broker can help you compare likely options and explain each lender's criteria, though only the lender can approve it.

How often can you refinance?

No rule sets a fixed limit on how often you can refinance, but three practical limits mean "as often as you like" is rarely the right answer. Each switch has its own costs to recover, so the question is whether you'll bank a real saving, not how many times you move.

The first limit is the recovery test again: switch before you've recovered the last switch's costs and you can end up paying out faster than you save. The second is your credit file. Each application is a credit enquiry that stays on your report for five years (OAIC). Equifax notes that several applications in a short space of time can read as a sign of financial difficulty and affect your score (Equifax, 2026). The third is the fine print on cashback deals. A cashback can carry a clawback that requires you to repay it if you leave too soon, so check the terms before you treat serial switching as a strategy.

Is it worth refinancing just for a cashback?

Only if the deal still puts you ahead once the rate and fees are counted. That's exactly how ASIC frames it. Its advice is to "do the maths to ensure a cashback offer still puts you ahead over the long term when considered against other aspects of the loan, like interest rates and fees" (ASIC, 2021). A cash sweetener is not the same as a better loan.

The trap is that a headline cashback can sit on top of a higher rate, so the number you're handed today is repaid through the rate you carry for years. ASIC's own caution is that costs like LMI, discharge and arrangement fees "can outweigh the benefit of a lower interest rate" (ASIC, 2021). Judge the loan on its rate, fees and features over the years you'll hold it; treat the cashback as a tie-breaker between otherwise similar loans, not the reason to switch.

Start with your own lender first

Before you apply anywhere, ask your current lender to match what it offers new customers, because the cheapest refinance is often the one where you don't move at all. The gap between older and newer loans, the "loyalty tax", has narrowed on average. The Reserve Bank reports the spread between the average new and average outstanding variable rate fell from around 35 basis points in 2019 to around 3 basis points by December 2025 (RBA, 2026). But that is an average, not a rule about your loan, and the spread around it is wide, so your own rate could sit well above what new customers are offered.

Historically the gap was far larger. The ACCC's 2020 home loan inquiry found older loans paid more than new ones: about 104 basis points more over ten years old, and 58 basis points more at three to five years. It urged anyone with a loan older than three years to review their rate. There's a second reason to ask first. The RBA found that most borrowers who can't refinance with another lender are still able to negotiate a discount with their existing lender, provided they meet other criteria like loan size and LVR (RBA, 2023). A phone call costs nothing and, for many owners, is often the fastest saving available.

The bottom line

Refinancing is worth it when the saving clearly beats the switching cost and you'll hold the loan long enough to recover it. It isn't when the costs can't be recovered, when a break fee or LMI cancels the gain, or when a fresh 30-year term quietly raises your lifetime interest. And it isn't always possible. With rates having risen through 2026 and the cash rate at 4.60% as at 30 September 2026 (RBA), some owners who'd benefit from switching can't pass the new assessment to do it.

So run the test in order. Check your own rate against the new-customer rate, ask your current lender to match it, and only then weigh a full switch, with the costs counted in full. A broker can help you compare options and weigh whether a move stacks up, but only the lender can approve it.

See it in action
Weighing up a switch?

knest.ai's buyer-side property intelligence lets you ask anything, research a home, or estimate your borrowing power, with loan comparison, deposit and LVR, and repayment scenarios in the app. It's general information to help you ask better questions, not a refinance recommendation or a rate quote.

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Frequently asked questions

Is it worth refinancing a home loan?

It's worth it when the saving clearly beats the switching cost and you'll hold the loan long enough to recover that cost (ASIC MoneySmart, 2026). The test is a break-even: the fees divided by the monthly saving is how many months until you're ahead. A short recovery is a strong sign, but it's only a first screen, so also compare the two loans on the same balance, term and fees.

How often can you refinance a home loan?

No rule sets a fixed limit on how often you can refinance. The real limits are practical: each switch has its own costs to recover, adds a credit enquiry that stays on your file for five years (OAIC), and a cashback may carry a clawback if you leave early. Switching repeatedly rarely pays unless each move clears its own costs.

Can I be refused a refinance?

Yes. Refinancing is a full new loan application, and as at the RBA's April 2023 review around 16% of existing loans couldn't pass a new lender's serviceability test (RBA, 2023). APRA has confirmed some borrowers seeking to refinance may no longer meet standard criteria (APRA, 2023). A non-bank lender or your existing lender may still be options, though a non-bank also assesses your ability to repay and may charge a higher rate.

Should I refinance or ask my current bank for a better rate first?

Ask your current lender first. It's the cheapest option because it can skip the discharge and paperwork, and the RBA found most borrowers who can't switch elsewhere can still negotiate a discount where they are (RBA, 2023). If they won't move enough, then compare a full switch, with the switching costs counted.

Is it good or bad to refinance?

Neither on its own: it depends on your rate, your costs and your plans. The framework is the break-even, weighed against whether you'd pass a fresh assessment. Compare your rate to the new-customer rate, ask your lender to match it, and talk to a broker about whether a switch stacks up for you.

Sources

Eleanor Hayes, Editor, knest.ai

This article is general information for Australian home buyers and owners, not personal financial, credit, legal or tax advice, and not a recommendation to refinance. knest.ai is a buyer-focused property intelligence platform that provides decision support, not a broker or lender service, and does not replace a licensed mortgage broker or lender. Any broker introduction through the Home Loan Expert is buyer-initiated and never automatic; where knest.ai receives a benefit from such an introduction, that benefit is disclosed to you. Verify any figures for your own circumstances before you act.

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