Refinance / Restructuring
Interest Rates And Refinancing
5 min read- Finance Guide
- Updated 2026
Quick answer
Refinancing lets you review your
Interest Structure
And the real cost of the loan
- Common rate structures Fixed variable split
- Comparison focus Rate plus fees
- Hidden risk Break costs and term reset
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Detailed explanation
Interest rates sit at the centre of most refinance decisions, but the lowest advertised rate is not always the best refinance option. The real question is whether the new structure improves the loan after allowing for comparison rate, break costs, valuation or settlement fees, feature trade offs, and how long the borrower expects to keep the loan.
Key interest rate concepts in refinancing
When comparing refinance rates, borrowers usually need to understand:
-
The difference between fixed and variable rates
-
How split loans combine certainty and flexibility
-
Why comparison rate can matter more than headline rate
-
How offset accounts and redraw can change the value of a variable loan
-
Why interest only periods can reduce repayments but increase long term cost
-
How break costs and term reset can change the economics of switching
MoneySmart notes that switching home loans may save money, but borrowers should make sure the benefit outweighs the switching costs, and comparison rate is designed to help show the true cost of a loan once interest and most fees are taken into account.
Interest rate structures you can choose when refinancing
Refinancing may allow a borrower to move into a structure that better matches their goals, such as:
Fixed rate for repayment certainty- Variable rate for flexibility and feature access
- Split rate to balance certainty and flexibility
- Interest only period where policy allows
- Offset and redraw features on eligible products
- Different repayment mix after a fixed term ends
- A refinance that prioritises total cost rather than teaser pricing
MoneySmart explains that split loans combine fixed and variable portions, while interest only loans can reduce repayments at first but usually cost more over time once the higher later repayments and extra interest are considered
Why rate choice is not just about the lowest number
A lower rate can still be the wrong refinance option if it comes with inflexible terms, no offset account, a costly annual package fee, expensive break costs, or a full term reset that increases total interest. Refinance decisions work best when the borrower compares both pricing and structure, not just the top line percentage.
APRA serviceability buffer — 3 percentage points Borrowers are generally assessed above the actual loan rate when applying for a refinance. In simple terms, a loan priced at 6 percent may still be tested at around 9 percent for serviceability purposes.
How rates and refinance costs interact
Interest rate comparisons only make sense when switching costs and product fees are included in the calculation
Common items to check include:
Discharge and settlement fees on the outgoing loan- Application, package, valuation, registration and legal costs where applicable
- Whether the comparison rate still looks attractive after fees are included
- Fixed rate break costs if exiting early or changing product or repayment type
- Whether resetting the term will increase total interest despite a lower rate
Rate comparison note
Moneysmart explains that comparison rate helps show the true cost of a loan by folding interest rate and most fees into a single figure, while major lenders warn that break costs can apply if a fixed rate loan is repaid early or switched before the fixed term ends.
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Common problems when comparing refinance rates
Refinance comparisons often go wrong when the borrower looks only at advertised rates and misses the cost, flexibility or risk attached to the structure.
The lowest rate is not the cheapest overall loan
A discounted rate can still be a poor refinance if fees, package costs, offset trade offs or a term reset lift the total cost over time.
Possible solutions include:
- Compare comparison rate and total loan cost, not just the headline rate
- Calculate the breakeven period before switching
- Check whether features lost under the cheaper product matter to you
- Keep the new term aligned with the broader repayment plan
MoneySmart specifically warns borrowers to make sure the benefits of switching outweigh the costs.
Fixed rate break costs wipe out the savings
Exiting a fixed loan early can trigger break costs that may remove the value of a better refinance rate.
Possible solutions include:
- Obtain a break cost quote before progressing
- Compare the break cost against likely savings over your expected holding period
- Refinance only the variable portion if the split structure allows it
- Wait until the fixed period ends if that produces the better result
Major lenders state that break costs can apply when switching out of a fixed rate loan before the fixed period expires or when changing product or repayment type during that period.
The borrower chooses the wrong structure for the next stage
A borrower might focus on rate certainty and choose fixed, then later realise they needed variable flexibility, offset access or easier extra repayments.
Possible solutions include:
- Match the rate structure to how long the loan is likely to be held
- Check whether offset, redraw and extra repayment flexibility matter
- Use split rates where both certainty and flexibility are important
- Review what will happen when a fixed period ends and the loan reverts to variable
Moneysmart notes that split loans can be useful when borrowers want both a fixed component and a variable component.
Steps to compare interest rates when refinancing
Step
01
Check the current rate, balance, remaining term, and whether the existing loan is fixed, variable or split.
Step
02
Compare the proposed headline rate, comparison rate, fees and features.
Step
03
Estimate likely savings, breakeven period and total cost over the time you expect to keep the loan.
Step
04
Confirm serviceability, property value and eligibility with the new lender.
Step
05
Apply, complete valuation and review the final loan documents carefully.
Step
06
Complete settlement, payout the old loan and monitor how the new rate structure performs over time.
Speak with a property refinance specialist.
Refinancing rates only make sense when they are looked at in the context of cost, structure and flexibility.
The right choice depends on whether you want certainty, flexibility, offset access, extra repayment freedom, or a balanced split structure. A proper review can show whether the refinance is likely to produce a genuinely better long term outcome rather than just a lower advertised rate.
Speak with a property refinance specialist about your loan structure.
Submit the short form below and a property refinance specialist will review your current loan, likely refinance structures and possible funding options.
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