Refinancing Costs & Break Fees Explained

Common refinancing costs in Australia include a discharge fee from your current lender (typically $150 to $400), a break cost if you are on a fixed rate, an application or establishment fee from the new lender (typically $0 to $700), a valuation fee (typically $200 to $600), and government mortgage registration fees (typically $100 to $300 depending on the state). Total switching costs commonly range from $1,500 to $5,000 or more, depending on loan type and lender.

A break cost, sometimes called a break fee or early repayment cost, applies when you exit a fixed rate home loan before the fixed term ends. It compensates the lender for the interest income they lose if wholesale rates have fallen since your loan was written. Break costs can range from a few hundred dollars to tens of thousands of dollars depending on the loan balance, the remaining fixed term and how much rates have moved. Break costs do not apply to variable rate loans.

Break costs are generally calculated using the difference between your fixed rate and the current wholesale rate for the remaining fixed term, multiplied by your outstanding loan balance and the time remaining. Because the formula uses wholesale funding rates rather than standard advertised rates, the exact figure must be obtained from your current lender. You cannot calculate it accurately yourself without the lender's internal funding rate data.

A discharge fee is charged by your current lender when you pay out and close your existing loan. It covers the administration cost of releasing the mortgage from the title. Most major banks and lenders charge between $150 and $400 for a standard discharge, though fees vary by lender and state. Some lenders call this a settlement fee or loan exit fee.

In some cases, yes. Some lenders allow you to capitalise certain costs into the new loan, particularly where your LVR remains below 80% after doing so. However, rolling fees into the loan increases your loan balance and means you pay interest on those costs over the life of the loan. Whether this makes financial sense depends on the amounts involved, your LVR position and how long you plan to stay with the new lender.

The break-even point is the time it takes for your monthly interest savings to cover the total switching costs. For example, if refinancing costs you $3,000 and you save $200 per month, your break-even point is 15 months. If you plan to sell, fix again or refinance before that point, the numbers may not stack up. Running this calculation before committing is an important step.

Refinancing out of a fixed rate loan can still be worthwhile, but the break cost can significantly change the outcome. You need to request the exact break cost figure from your current lender, then compare it against the interest savings from the new rate over your planned loan term. In some cases it is better to wait until the fixed term expires before switching. A finance specialist can help you model both options.

When you refinance, you typically pay a mortgage discharge registration fee to remove your current lender from the title and a mortgage registration fee to register the new lender's mortgage. These are state government fees and vary by state and territory. In most states, the combined cost is between $100 and $400. You may also pay a transfer fee if changing the name on the loan or title at the same time.