“What’s this actually going to cost me?”
It’s the question my clients ask all the time. And it’s the right thing to ask, because the cost of switching is exactly what decides whether a refinance is worth doing at all.
Here’s the honest version most people don’t hear: the headline rate you’re chasing is only half the equation. The other half is what it costs to get there, and how long your saving takes to recover it. I’ve talked plenty of owners out of refinancing because the costs didn’t stack up, and just as many into it because they did. This guide walks through every cost involved in refinancing a commercial property loan, which ones are negotiable (more than you’d think), and how to work out your break-even before you commit to anything.
What does it cost to refinance a commercial property loan?
A commercial refinance carries a handful of fairly predictable costs, plus one variable cost that often dwarfs the rest. As a rough guide, the fixed and predictable costs usually total a few thousand dollars all in, but the wildcard, the break cost on a fixed loan, can run much higher and is the figure that most often makes or breaks the decision.
Here’s what a fully-costed refinance typically includes:
| Cost | How it’s charged | What it covers |
|---|---|---|
| Break cost | Only on fixed loans, varies widely | The lender’s loss on the remaining fixed term. The big variable, often the largest single figure |
| Discharge fee | Fixed fee, per loan | Your current lender’s charge to release the mortgage and close the loan |
| Establishment fee | Percentage of the new loan, upfront | The new lender’s setup and documentation cost, often capitalised into the loan |
| Valuation | Per valuation | The new lender’s independent valuation, which sets your LVR and pricing |
| Legal and documentation | Per matter | Preparing the new loan and security documents, registering the new mortgage |
The thing to notice is that only one of these, the break cost, is genuinely large and unpredictable. The other four are modest and fairly stable. So the entire “is it worth it” question usually comes down to whether you’re on a fixed or variable loan, which we’ll come to.
Break costs: the one that decides everything
If you’re on a variable rate, you can usually exit without a break cost, which makes the maths on a refinance much simpler. If you’re on a fixed rate and you leave before the term ends, that’s where the break cost lands, and it can be the difference between a refinance that pays off and one that doesn’t.
A break cost isn’t a penalty the lender invents. When you fixed your rate, the lender funded that loan on the wholesale market for the fixed term. If you exit early and rates have moved against the lender since, they wear a genuine loss, and the break cost passes that on. As ASIC’s Moneysmart puts it, the general rule is that the more interest rates have fallen since you fixed, the higher the break cost will be.
The practical implications for a commercial refinance:
- The size of your loan matters. Break costs scale with the balance, so on a large commercial facility the figure can be substantial.
- The time left on the fixed term matters. More remaining term means a bigger potential cost.
- The rate movement matters. The further rates have fallen since you fixed, the larger the break cost.
This is why the first thing I do on a fixed loan is get an indicative break cost figure from your current lender before we go any further. There’s no point modelling a refinance until we know that number, because it can change the entire picture. And critically, the break cost is the figure I most often negotiate down or get waived as part of placing the deal, which brings us to the next point.
What’s actually negotiable?
More than most owners assume. People tend to treat refinancing costs as fixed line items on a quote. In practice, several of them have room to move, especially when there’s a broker placing volume with the lender and structuring the deal competitively.
| Cost | Room to move? | What we can often do |
|---|---|---|
| Break cost | Sometimes | Negotiate down or get waived, depending on the lender and your situation |
| Establishment fee | Often | Reduced or waived as part of winning the deal, or capitalised so it’s not paid in cash |
| Valuation | Sometimes | Some lenders absorb it on competitive deals or accept a recent valuation |
| Discharge fee | Rarely | A fixed administrative cost from your existing lender, usually fixed |
| Legal and documentation | Rarely | Generally fixed, though structuring can keep it lean |
The point isn’t that every cost vanishes, it’s that the two largest, the break cost and the establishment fee, are precisely the ones with the most room to move. That’s a meaningful chunk of the total, and it’s why the quoted cost you’re shown on day one is rarely the cost you actually pay. Our commercial property refinance page goes into how we approach each of these when placing a deal.
How to work out your break-even
This is the calculation that actually matters, and it’s simpler than it sounds. Your break-even is the point at which your monthly saving has recovered the total cost of switching. Past that point, you’re ahead. Before it, you’re not.
The formula is just:
Total cost to switch ÷ monthly saving = break-even in months
Here’s a worked example on a mid-sized commercial loan:
| Figure | Amount |
|---|---|
| Total cost to switch (all fees, no break cost on a variable loan) | $11,000 |
| Rate improvement | 1.8% (8.4% to 6.6%) |
| Monthly saving on a $1.4m loan | ~$2,100 |
| Break-even | Just over 5 months |
In that example, the costs are recovered in about five months, and every month after that is a genuine saving. If you’re holding the property for years, that’s an easy decision. The picture changes completely if there’s a large break cost on top, or if you’re planning to sell within a year, which is exactly why the break-even, not the headline rate, is the number to focus on. You can run your own figures through our cash flow calculator to sense-check the saving against your income, and our commercial property loan interest rates page shows where pricing sits today so you can gauge the size of your rate gap.
When the costs mean you shouldn’t refinance
The honest part. There are clear situations where, once you’ve costed it properly, refinancing doesn’t pay, and a good broker will tell you so rather than push the switch through for the commission.
The costs don’t recover in time. If your break-even is years out and you’re not certain to hold the property that long, the move doesn’t make sense. Sometimes the better play is renegotiating with your current lender instead, which we can help with too.
A large break cost wipes out the saving. On a fixed loan with significant term remaining and rates that have fallen since you fixed, the break cost can swallow the entire benefit. Often it’s better to wait until the fixed term ends.
You’re selling soon. Inside 12 months, the upfront costs rarely deliver enough return. At 18 months or more, the numbers usually start to work.
The rate gap is too small. A minor rate improvement rarely covers the cost of switching. We’d recommend it when the gap is meaningful, or when there’s a clear structural benefit like releasing equity to fund the next purchase or escaping restrictive covenants, rather than a tiny rate move.
The next step
Refinancing costs aren’t a reason to avoid a refinance, they’re the thing to understand before you commit to one. Get the break cost figure, total the rest, set it against your monthly saving, and the decision usually becomes obvious. The work is in costing it honestly, which is exactly what we do before recommending anything.
As business loan brokers, we’ve arranged over $550 million in commercial finance for 3,300+ Australian businesses, and we model the total cost to switch against the saving on every refinance we look at. Take a look at our commercial property refinancing page for the full lending detail, run your numbers through our commercial property loan repayments calculator, or book a free consultation and we’ll tell you honestly whether the costs stack up for your situation.
📞 Phone: 1300 262 098 or book your free consultation online here.
Disclaimer: This guide provides general information only and should not be considered financial advice. Refinancing costs vary by lender, loan and individual circumstances. Always consult qualified professionals, including your accountant and a licensed finance broker, before making decisions about your commercial property finance.
