How does refinancing a mortgage work in Australia?

Why refinance: lower rate (typical motivator), unlock equity (top-up loan against built-up equity), consolidate other debt, change loan structure (P&I to IO or vice versa, fixed to variable), drop LMI (once LVR falls below 80%), or escape a problem lender. The most common AU refinance reason post-2023 has been rate-shopping as RBA hikes opened a 50-100bps spread between incumbents + non-major lenders.

APRA refinance carve-out: APG 223 §51 allows lenders to apply a tighter +1% serviceability buffer (vs the standard +3%) when the refinance is genuine, same borrower, same property, same loan size or smaller, no equity-pull. This unlocks refinances for borrowers who'd otherwise fail the new-loan stress test. Important during rate-cycle peaks.

Costs: discharge fee from old lender ($150-450), application fee at new lender ($0-600), valuation fee ($0-400), title-registration fee ($150-200 state-based), settlement fee ($150-300), break costs if breaking a fixed loan early ($0-thousands depending on rate gap × remaining fixed term). Total typically $500-1500. Many lenders offer cashback ($2,000-4,000) to refinance to them, net cost can be negative if cashback > fees.

Steps: (1) calculate break-even (cashback − cost) ÷ monthly rate-saving = months to payback. (2) Apply at new lender; supply payslips + 3 months bank statements + existing loan statements. (3) New lender values the property + assesses serviceability. (4) On approval, new lender pays out old lender directly + registers new mortgage. (5) Old account closes; redirect direct debits to new account. Process is mostly digital + commonly broker-driven.