The Real Cost of Refinancing – Fees, Cashbacks & Traps to Watch For

Refinancing can save you thousands — but only if you understand the costs involved. While many lenders offer cashback promotions and sharp rates, there are also fees, charges and timing traps that homeowners aren’t always aware of.

This guide breaks down the real costs of refinancing, how they work and how to avoid paying more than you need to.

1️⃣ The Main Costs You’ll Face When Refinancing

Most homeowners will encounter a few standard fees:

Discharge fee: A small fee your current lender charges to close your loan.
Mortgage registration fee: A state government fee to remove the old mortgage and register the new one.
Valuation fee: Some lenders charge for the property valuation (many waive this).
Settlement fee: Admin costs for processing the switch.

These aren’t huge, but they add up — usually between $300 and $600 total.

2️⃣ If You’re on a Fixed Rate, There May Be Break Costs

If you refinance before a fixed rate expires, your current lender may charge a “break fee” or “economic cost”.

The fee depends on how much your rate differs from current market rates.
The longer you have left on your fixed term, the higher the potential cost.
Sometimes it’s $0 — other times it can be thousands.

A broker can calculate this upfront so you’re not hit with surprises.

3️⃣ Cashbacks: Helpful or Hype?

Cashback deals can be attractive — $2,000 to $4,000 is common — but it’s important to look beyond the bonus.

Cashbacks don’t guarantee the best long-term interest rate.
Some lenders quietly increase rates after you’ve switched.
You might be locked into the new product for 12–24 months.

A cashback should be a bonus, not the main reason to choose a loan.

4️⃣ Don’t Choose a Loan Based on Rate Alone

A low advertised rate isn’t always the cheapest option. You should also look at:

Comparison rate: Includes fees and gives a clearer picture.
Loan features: Offset, redraw, repayment flexibility, fee structure.
Future plans: Fixing your loan may restrict refinancing options later.

Sometimes a loan with a slightly higher rate but better features saves you more overall.

5️⃣ How Loan Structure Affects Your Total Cost

The way your new loan is set up influences long-term value:

Full offset account: Can save thousands in interest.
Split loan: Protects part of your loan with a fixed rate.
Interest-only options: Lower repayments, but higher long-term interest.

Your structure should reflect your life plans, not just the lender’s default settings.

6️⃣ When Refinancing Actually Saves You Money

Refinancing is usually financially worthwhile when:

Your current interest rate is uncompetitive (often starting with a “5” or “6”).
You have enough equity to avoid LMI.
You plan to keep the new loan for at least 12–24 months.
The savings across 12–24 months exceed the cost of switching.

A simple calculation:

Total costs – 12-month interest savings = Net benefit.

If the number is positive, refinancing is usually worth it.

7️⃣ When Refinancing Might Not Be Worth It

There are situations where switching lenders doesn’t make financial sense:

Your fixed rate break fee is too high.
Your LVR is above 80% and LMI makes refinancing expensive.
You plan to sell or move within 12 months.
Your credit has taken a recent hit.

In these cases, a repricing request with your current lender might be smarter.

8️⃣ How to Avoid Common Refinancing Traps

A few smart steps can save you big headaches:

Check for hidden fees in the new loan’s product guide.
Compare comparison rates, not just advertised rates.
Beware of honeymoon rates that jump after 12 months.
Ask if there’s a minimum time you must stay with the new lender.
Avoid restarting a 30-year term if you’re already years into your mortgage.

🔟 The Smartest Way to Compare Refinance Costs

A broker can show you:

The real 12–24 month savings after costs.
Rate vs comparison rate vs total interest.
Which lenders have hidden fees.
Which offers have cashback conditions.

Want a personalised cost vs savings breakdown?

Book a free refinancing check with the Loan Location team. We’ll calculate the true cost of switching and show you whether refinancing will save you money.