Refinance Costs and Break-Even: A Worked Australian Example

How long does it take to recover refinance costs? For costs paid upfront from cash, divide those costs by the positive monthly reduction in total payments and ongoing fees. For example, $2,400 divided by $200 per month is 12 months. This simple cash-flow estimate assumes the monthly difference stays constant; it is not a complete measure of total savings.

This guide shows the arithmetic and its limits. For the wider decision about whether to stay, renegotiate or switch, read when to refinance a home loan.

Make a like-for-like comparison first

Record the current balance, repayment type and remaining term. Compare a replacement arrangement on those same settings. Keep any extra borrowing separate, including switching fees you intend to finance. If the replacement loan runs longer, a lower repayment can partly reflect slower repayment of the debt.

Choose a comparison period that fits your plans. Someone expecting to sell in a year has a different question from someone planning to keep the property for a decade. Record whether rates, payments, fees or offset balances are assumed to stay unchanged.

Collect the costs before doing the division

Ask for written figures for exiting the current arrangement and setting up the new one. Depending on the loans, these could include a fixed-rate break cost, discharge fee, application or valuation charge, legal or settlement costs, government mortgage registration charges and any lenders mortgage insurance (LMI) requirement. CommBank's refinance guide includes mortgage registration among the possible costs. Some amounts may be waived or included in another charge; use the actual quote and count each item once.

Separate upfront costs from ongoing fees. Annual fees can be divided by 12 for a rough monthly comparison, while remembering the actual cash leaves the account on its billed date. Do not treat an unconfirmed cashback or possible waiver as money you have already received.

Use one row per charge in your comparison, recording the amount, who quoted it, when it is payable, whether it is paid from cash or added to the debt, and when the quote expires. Get the existing lender's payout and break-cost figures for your intended settlement date; an earlier estimate may change. If the quote includes a provider risk fee or another insurance charge, record its actual name and cost rather than assuming it is covered by an LMI allowance.

Worked example: $2,400 and $200 per month

Assume a fictional switch has $2,400 of upfront costs paid from cash. Compare the same opening balance, remaining term and repayment type, with no extra borrowing. Assume the current monthly repayment is $3,200 with a separate $20 monthly fee, while the replacement repayment is $3,010 with a separate $10 monthly fee.

The monthly difference is ($3,200 + $20) minus ($3,010 + $10) = $200. These payments are assumed inputs for the arithmetic, not repayments calculated from advertised interest rates. Assume that difference stays constant, no extra charges arise and there is no cashback. The cash-paid switching cost divided by the monthly difference is $2,400 / $200 = 12 months.

• After six months, the cumulative difference is $1,200. It has not recovered the $2,400 cost.

• After 12 months, the cumulative difference is $2,400: simple cash-flow break-even.

• After 24 months, the cumulative difference is $4,800. Subtracting the original cost leaves $2,400 of net cash-flow difference under these assumptions.

These are illustrative calculations, not current product rates, a customer case study or an AL Rizq savings promise. The comparison must also account for the balances remaining, especially if the repayment structure differs.