Refinancing is one of those things everyone assumes they should do periodically — without always being clear on when it actually makes financial sense. Sometimes it saves thousands. Sometimes the costs outweigh the savings. Here’s a framework for thinking about it clearly.

Why People Refinance

The most common reasons borrowers refinance are:

  • Rate reduction: Their fixed term has ended and a competitor is offering a better rate
  • Cashback offers: Banks regularly offer cashback incentives, often several thousand dollars and up to around $30,000 on larger loans, to attract new customers
  • Debt consolidation: Rolling higher-interest debts into a mortgage to reduce total interest cost
  • Structure changes: Moving from interest-only to P+I, or restructuring to match a changed financial situation
  • Releasing equity: Accessing equity for renovations, investments, or other purposes

The Break-Even Calculation

Before refinancing, you need to understand the cost. If you’re refinancing a property at the end of a fixed term, there may be no break cost — you’re simply choosing a new term. But if you’re mid-fixed-term, the bank will charge a break cost.

Break costs are calculated based on the difference between your fixed rate and current wholesale interest rates for the remaining term. When interest rates have risen since you fixed, break costs are low or zero. When rates have fallen, break costs can be significant — sometimes $5,000–$20,000 for larger loans.

The break-even point is: break costs + switching costs ÷ monthly savings = months until you’re ahead.

If your break cost is $8,000 and refinancing saves you $400/month, your break-even point is 20 months. If you’re planning to sell in 18 months, it’s not worth it.

Switching Costs Beyond Break Fees

Beyond break costs, switching lenders involves:

  • Legal fees: Usually $1,000–$1,500 for the discharge and new mortgage registration
  • Valuation: Some lenders require a new valuation, typically $500–$1,000
  • Cashback offset: If your current lender gave you cashback, there may be a clawback provision if you leave within a certain period (typically three to four years)

Some lenders offer cashback to cover switching costs, which can make refinancing financially neutral even when costs are involved.

When Refinancing Makes Clear Sense

  • You’re at or near the end of your fixed term with no break cost
  • You have a significant rate difference (0.5% or more on a large loan) and you’re staying in the property long enough to break even
  • You’re consolidating high-interest debt at a material rate saving
  • Your lender’s cashback offer covers the switching costs with rate savings on top

When to Be Cautious

  • You’re deep in a fixed term with significant break costs
  • The rate difference is small relative to the costs
  • You’re planning to sell within 12–24 months
  • Your current lender’s service and relationship have genuine value you’d lose

What We Actually Do

When a client asks about refinancing, we model it properly — break costs, switching costs, rate savings, cashback, and the break-even timeline. We then lay out the numbers honestly. If staying makes more sense, we’ll tell you. If switching makes sense, we know which lenders are currently competitive and whether their cashback offers cover your costs.

Refinancing every two to three years when your fixed terms roll over is worth reviewing. Whether you actually switch each time depends on the numbers at that point — not on a rule of thumb.