How Much Can You Save by Refinancing Your Home Loan in 2026
If you haven't refinanced in the last two or three years, there's a good chance you're paying what the industry calls the loyalty tax — a rate that's 0.5% to 1% higher than what the same bank is advertising to brand-new customers right now. On a $500,000 loan, that's $2,500 to $5,000 extra per year going straight to your lender.
The good news: refinancing in 2026 has never been more accessible. Rates are competitive, cashback offers are back on the table, and the whole process takes weeks rather than months. This guide breaks down the real maths — what it costs to refinance, how long it takes to break even, and when it actually isn't worth doing.
Use the free refinance savings calculator to run your own numbers in 30 seconds.
Last updated: May 2026.
Key takeaways
- Existing borrowers in Australia pay roughly 0.5%–1% more than new customers at the same lender — the "loyalty tax" documented in RBA research.
- Typical refinancing costs range from $500 to $2,000 all up (discharge fee, application fee, valuation, mortgage registration).
- On a $500,000 loan switching from 6.5% to 5.8%, the monthly saving is around $220 and the break-even point is about 7 months.
- Cashback offers of $2,000–$4,000 from select lenders in 2026 can cut your break-even point to near zero.
- Refinancing is usually not worth it if you're selling within 2 years, your LVR is above 80% (LMI risk), or you're still inside a fixed-rate term.
Table of contents
- What is the loyalty tax — and are you paying it?
- What does it actually cost to refinance?
- The break-even calculation explained
- Worked example: $500,000 loan, 6.5% to 5.8%
- Cashback offers in 2026 — what's real and what's spin
- When refinancing is NOT worth it
- How to compare home loans properly (not just the headline rate)
- Frequently asked questions
What is the loyalty tax — and are you paying it? {#loyalty-tax}
The loyalty tax isn't a fee your lender lists anywhere. It's the gap between the rate you're currently on and the rate the same lender will offer a new customer today.
The Reserve Bank of Australia has consistently documented this gap in its Financial Stability Reviews. Their data shows that existing variable-rate borrowers pay, on average, around 0.40%–0.57% more than new customers — and some lenders stretch that gap to 1% or more for borrowers who haven't reviewed their loan in three-plus years.
On a $600,000 loan, 0.5% is $3,000 per year. On $800,000, it's $4,000. Every year you stay on a back-book rate is another year of that gap compounding.
The blunt reason this happens: lenders compete hard for new business and put their sharpest rates on the front window. Existing customers who don't ask don't get the discount. Refinancing — or even calling your bank and threatening to refinance — is how you close that gap.
What does it actually cost to refinance? {#refinancing-costs}
Refinancing isn't free, and the costs are what make the break-even calculation matter. Here's a realistic breakdown:
| Cost item | Typical range | Notes |
|---|---|---|
| Discharge fee (exit fee) | $150 – $400 | Charged by your current lender to close the loan |
| Application / establishment fee | $0 – $700 | Charged by the new lender; many waive this to win business |
| Valuation fee | $0 – $300 | New lender needs to value the property; some cover this |
| Mortgage registration fee | ~$150 | Government fee to register the new mortgage (varies by state) |
| Legal / settlement fee | $0 – $300 | Some lenders bundle this; others charge separately |
| Total (typical) | $500 – $1,500 | Most borrowers land somewhere in this range |
These are price indications only based on estimates from Leadkit's refinance savings calculator using current Australian market rates. Your lender will confirm the exact fees during the application process.
A few things worth knowing:
- Discharge fee (also called a termination fee) is the most certain cost — most lenders charge it regardless of how competitive the market is.
- LMI (Lenders Mortgage Insurance) is the big wildcard. If your LVR (loan-to-value ratio) is above 80%, the new lender will likely require LMI, which can run into thousands of dollars and completely change the maths. More on this below.
- Break fees on fixed-rate loans are a separate beast — if you're mid-way through a fixed term, the break cost can be enormous. Always check with your current lender before assuming you can exit.
ASIC's MoneySmart website has a useful breakdown of home loan switching costs and the questions to ask your lender before you commit.
The break-even calculation explained {#break-even}
The break-even point is the number of months it takes for your monthly savings to cover the total cost of refinancing. It's the single most important number in the refinancing decision.
Formula:
Break-even (months) = Total refinancing costs ÷ Monthly saving
If it costs you $1,500 to refinance and you save $200 per month, your break-even is 7.5 months. If you plan to stay in the property for at least another year or two, that's a straightforward win.
If the break-even stretches past 24–30 months, the case for refinancing weakens — you're locking in upfront pain for a distant payoff, and there's more risk that circumstances change (you sell, rates move again, you lose income) before you recoup.
The mortgage comparison calculator lets you compare two loans side-by-side and see the total cost difference over 5, 10 and 25 years — not just the monthly saving.
Worked example: $500,000 loan, 6.5% to 5.8% {#worked-example}
This is a realistic scenario for a Sydney or Melbourne borrower who took out a loan in 2022–23 and hasn't revisited it since.
| Detail | Current loan | New loan |
|---|---|---|
| Balance | $500,000 | $500,000 |
| Interest rate | 6.5% p.a. | 5.8% p.a. |
| Remaining term | 25 years | 25 years |
| Monthly repayment | ~$3,374 | ~$3,154 |
| Monthly saving | — | ~$220/month |
| Annual saving | — | ~$2,640/year |
Total refinancing costs (estimated):
| Item | Amount |
|---|---|
| Discharge fee | $300 |
| Application fee | $0 (waived) |
| Valuation fee | $200 |
| Mortgage registration | $150 |
| Legal/settlement | $200 |
| Total | $850 |
Break-even: $850 ÷ $220 = 3.9 months
In under 4 months, you've recovered the entire cost of switching. Over the remaining 25 years of the loan, the total interest saving is over $50,000.
Even accounting for the fact that the rate gap may narrow over time (as the RBA cash rate moves), saving $50K+ over the life of a loan for less than $1,000 in upfront costs is a compelling case.
This is a price indication based on estimates from Leadkit's refinance savings calculator. Actual repayments and savings will depend on your lender's terms, fees and the current rate environment. This is not financial advice.
Cashback offers in 2026 — what's real and what's spin {#cashback-offers}
Cashback offers are back in a meaningful way in 2026. Several lenders are offering $2,000–$4,000 cash when you refinance a qualifying loan to them. A handful are going higher for large loans.
On paper, a $3,000 cashback against $850 in refinancing costs means you're actually ahead by $2,150 on day one — plus ongoing monthly savings. That makes the decision almost a no-brainer.
The catch: cashback offers often come with strings.
- Minimum loan size — most require at least $250,000–$300,000 outstanding.
- Maximum LVR — most cap at 80% LVR. If you're above that, no cashback.
- Higher headline rate — some cashback loans carry a rate 0.2%–0.4% higher than the lender's best available rate. A $3,000 cashback on a $500,000 loan at a rate 0.3% above the sharpest offer costs you ~$1,500/year in extra interest — the cashback is gone in two years.
The rule of thumb: never choose a loan because of the cashback. Choose it because the rate and fees are competitive, and treat the cashback as a nice bonus that accelerates your break-even. Always compare the comparison rate (not just the headline rate) — it folds in most fees and gives a more honest like-for-like figure.
When refinancing is NOT worth it {#when-not-to-refinance}
Refinancing can be a solid financial move, but it isn't always the right call. Here's when the maths usually doesn't work in your favour:
1. You're planning to sell within 2 years. If your break-even is 8 months but you're selling in 18 months, you'll recoup the cost — but barely. Add the stress and paperwork, and it may not be worth the effort unless the saving is significant.
2. Your LVR is above 80%. Switching lenders when your equity is below 20% typically triggers LMI at the new lender. LMI can cost $5,000–$20,000+ depending on loan size and LVR — completely wiping out years of rate savings. Check your usable equity first using the usable equity calculator before approaching a new lender.
3. You're mid-way through a fixed-rate term. Break costs on fixed loans are calculated based on the lender's wholesale funding cost difference — and they can be substantial. Always get a break cost figure in writing from your current lender before proceeding.
4. Your financial position has changed significantly. If your income has dropped, you've taken on new debts, or your credit score has taken a hit, a new lender may not offer you a better rate (or any rate). Get a sense of your current borrowing position before formally applying — hard credit enquiries can ding your score if you're applying to multiple lenders.
5. The rate saving is less than 0.25%. Below that threshold, most refinancing costs will take 2–3 years to recover, and the total lifetime saving may not justify the effort. A 0.50%+ saving is where refinancing really starts to make clear sense.
How to compare home loans properly (not just the headline rate) {#how-to-compare}
This is where a lot of borrowers come unstuck. Two loans with the same headline rate can have very different real costs once you factor in fees, features and flexibility.
Things to compare beyond the interest rate:
- Comparison rate — standardised figure that folds in most fees, expressed as a percentage. Required by law in Australian advertising under the National Credit Code. Use it as a quick filter.
- Offset account — a 100% offset account can save tens of thousands over the life of a loan. Not all refinance products include one — check before you sign.
- Redraw facility — access to extra repayments you've made. Slightly different to offset in tax terms.
- Ongoing fees — annual package fees of $300–$400 are common. Over 25 years, that's $7,500–$10,000 quietly bleeding out.
Across mortgage broker quotes generated through Leadkit, the ongoing fee structure is consistently the most overlooked factor — borrowers fixate on the rate and miss a $395/year package fee that adds up fast.
ASIC MoneySmart's home loan comparison resources are worth reading before you commit. Use the home loan repayment calculator to model different rate and fee scenarios before you decide.
Frequently asked questions {#faqs}
Q: How much does it cost to refinance a home loan in Australia?
A: Refinancing a home loan in Australia typically costs $500–$2,000 all up. The main costs are the discharge fee from your current lender ($150–$400), the new lender's application fee ($0–$700, often waived), a property valuation ($0–$300), and the government mortgage registration fee (~$150). If your LVR is above 80%, LMI can add thousands more. Most borrowers with solid equity land in the $500–$1,500 range. Use the refinance savings calculator to estimate your break-even.
Q: How do I calculate my refinance break-even point?
A: The break-even formula is simple: divide your total refinancing costs by your monthly repayment saving. If refinancing costs you $1,200 and you save $200 per month, you break even in 6 months. After that, every month is pure saving. As a rough guide, a break-even under 18 months is generally considered a clear win; anything over 30 months warrants more careful thought. You can run this calculation automatically using Leadkit's refinance savings calculator in about 30 seconds.
Q: What is the loyalty tax on home loans?
A: The loyalty tax is the gap between the interest rate long-term borrowers pay and the lower rate the same lender offers to attract new customers. Research from the Reserve Bank of Australia has shown this gap averages 0.40%–0.57% for variable-rate borrowers — and it can be wider for those who haven't reviewed their loan in several years. On a $600,000 loan, 0.5% equates to $3,000 extra per year. Refinancing to a new lender, or negotiating hard with your current one, is the way to close the gap.
Q: Should I refinance if my LVR is above 80%?
A: Refinancing above 80% LVR is risky because the new lender will almost certainly require you to pay Lenders Mortgage Insurance (LMI) again — even if you paid it on your original loan. LMI isn't transferable between lenders. Depending on your loan size and LVR, this can cost $5,000–$20,000+, which can take many years of rate savings to recover. Before refinancing, check your current equity position using the LMI calculator. If you're close to 80% LVR, it may be worth waiting a few months until your balance drops below that threshold.
Q: Are home loan cashback offers worth it in 2026?
A: Cashback offers of $2,000–$4,000 are available from select lenders in 2026 and can genuinely accelerate your break-even point — sometimes to near zero. But they're worth it only if the underlying loan is competitive. A $3,000 cashback on a loan that's 0.30% above the sharpest rate available costs you roughly $1,500/year in extra interest — the cashback is gone inside two years. Always evaluate the comparison rate and ongoing fees first. Treat the cashback as a tiebreaker, not the main reason to choose a lender.
Q: How long does it take to refinance a home loan in Australia?
A: Most refinances take 2–6 weeks from application to settlement. Speed depends on how quickly you can supply documentation (payslips, tax returns, current loan statements) and the new lender's turnaround. A mortgage broker speeds things up significantly — they know which lenders are moving fast and handle the paperwork. Some online lenders are completing refinances in under 2 weeks in 2026.
Q: What is a discharge fee on a home loan?
A: A discharge fee (also called a termination fee) is what your current lender charges to close out your loan when you refinance or pay it off. It covers the admin cost of removing the mortgage from the property title. Discharge fees in Australia typically range from $150 to $400 — most lenders charge one, though some have waived or reduced them in recent years. It's the first number to nail down when calculating total refinancing cost.
Q: Is it worth refinancing to get a lower interest rate in 2026?
A: If you can reduce your rate by 0.5% or more and your LVR is under 80%, refinancing almost always pays off in 2026 — particularly given the loyalty tax most long-term borrowers are paying. At a 0.7% rate reduction on a $500,000 loan, you save roughly $3,500 per year. Even after $1,500 in refinancing costs, you're ahead in under 6 months and saving meaningfully for the life of the loan. The ABA and ASIC MoneySmart both recommend reviewing your home loan at least every 2–3 years, even if you don't end up switching.
Ready to see your actual savings?
Don't guess — run the real numbers in under a minute.
Use the free refinance savings calculator — enter your current loan balance, rate, and the new rate you've been quoted. You'll see your monthly saving, total break-even timeline, and lifetime interest saved instantly.
Or compare two loan products side by side using the mortgage comparison calculator to see the full cost difference over the life of both loans.
Want to model your repayments on a new loan before you apply? The home loan repayment calculator gives you a breakdown of principal and interest at any rate, in seconds.
Methodology
Cost ranges and repayment figures in this article are based on estimates generated using Leadkit's refinance savings calculator and mortgage comparison calculator, using current Australian market rates as at May 2026. Repayment calculations use standard principal-and-interest amortisation. Refinancing cost ranges reflect typical lender fee structures observed across the Australian market; individual lender fees vary and should be confirmed directly. Leadkit is the provider of the calculators referenced in this post.
This article is for general informational purposes only and does not constitute financial advice. Refinancing decisions should be made in consultation with a qualified mortgage broker or financial adviser. All prices are indicative only — your lender will confirm the final costs after assessing your situation.