Refinance or make extra repayments in Australia?

Build the current-loan case first

Record current balance, rate, remaining term, fixed expiry, offset and redraw features, and any break or discharge cost. Model keeping the loan with zero extra and with the proposed repayments.

Then obtain real refinance quotes. Moneysmart lists application, valuation, settlement, discharge and possible fixed break costs, and notes that lender’s mortgage insurance may apply when equity is insufficient under the new lender’s assessment.

Example: rate saving versus feature loss

A new loan advertises a lower rate but has no offset and charges establishment fees. The household currently keeps substantial emergency cash in offset. They compare the lower rate and fees with the lost offset benefit using the average balance expected to remain.

They also compare keeping the current loan and paying the cash directly, while recognising that principal is less accessible. The decision is based on total cost and liquidity, not the advertised rate alone.

Like-for-like comparison

1. Choose an expected holding period.
2. Collect current payout, break and discharge figures.
3. Obtain actual new-loan rates, fees and features.
4. Use the same remaining term where possible.
5. Compare cash outflow and balance at the horizon.
6. Calculate when net savings recover switching costs.

Switching risks

Approval, valuation and the final rate are not guaranteed. A cash incentive may be repayable if the new loan is closed early. Adding costs to principal means paying interest on them.

• Check LMI or low-equity pricing.
• Include the value and fees of offset and redraw.
• Do not restart a thirty-year term without showing the effect.
• Keep emergency cash and settlement funds available.
• Confirm the offset is relinked after any product change.

Use a calculator as a scenario, not a promise

Use Payoff Atlas for the keep-and-pay-extra case. Build the refinance as a separate loan using its new balance, rate, term and costs; a rate substitution inside the old schedule is incomplete.

The Australian model accrues interest across the actual calendar days between repayments, using 365 days or 366 in a leap year. It supports monthly, fortnightly and weekly schedules and keeps offset separate from contract principal.

The estimate holds the entered rate constant, assumes extras reach principal and does not model redraw as offset. Lender posting, fixed limits, break costs, fees and split-loan details can produce a different result.

Review the plan before money leaves

Compare zero extra, the intended plan and a version that pauses after a household shock. Use the same starting balance, dates and rate in each run. For a variable or split loan, repeat the comparison at other rates without describing any case as a forecast.

Keep the loan contract, current statement and written lender answers about fixed limits, break costs, offset links and redraw. Model materially different splits separately, because one blended schedule can hide different expiry dates and features.

• Fund required repayments and essential bills before voluntary extras.
• Keep an accessible reserve for income shocks and home repairs.
• Verify which split receives the extra repayment.
• Check the statement after the first transaction or frequency change.
• Rerun after a rate, repayment, offset, fee or product change.