10 Refinancing Mistakes to Avoid When Switching Home Loans

10 Refinancing Mistakes to Avoid When Switching Home Loans

Refinancing can save you thousands, but done wrong, it can cost you instead. Here are the mistakes we see most often and how to avoid them.

Mistake 1: Only Looking at the Interest Rate

The interest rate matters, but it’s not everything. A loan with a slightly higher rate but better features might actually save you more.

What to consider beyond rate:

• Comparison rate: This figure includes most fees and gives a truer picture of the cost.
• Offset account availability: Critical for keen savers and business owners.
• Redraw facility: Access to extra payments you’ve made.
• Extra repayment flexibility: Some fixed loans cap this at $10,000 per year.
• Annual and ongoing fees: These can eat into your interest savings.

Real-world comparison (based on $600,000 loan):

Feature	Loan A (Low Rate / High Fee)	Loan B (Higher Rate / Low Fee)
Interest Rate	5.79%	5.89%
Annual Fee	$395	$0
Offset Feature	No	100% Offset Included
Scenario	Borrower has $30,000 savings	Borrower has $30,000 in Offset
Net Result	Pays $395 in fees	Saves ~$1,767 in interest

The bottom line: Loan A looks cheaper on paper. Loan B puts you $1,372 ahead per year because the offset account works harder than the slightly lower rate.

Mistake 2: Ignoring Exit Costs

Your current loan may have exit costs that affect whether refinancing makes sense. We often see borrowers surprised by the final payout figure.

Fixed rate break costs: If you’re in a fixed-rate period, break costs can be substantial. These are calculated based on the movement of the Bank Bill Swap Rate (BBSW). If wholesale rates have dropped since you fixed, you could face a fee in the thousands.

Discharge fees: Lenders charge a fee to release their claim on your title. For 2025/2026, major banks like Westpac, NAB, and CBA typically charge around $350, while ANZ is currently lower at roughly $160.

Government registration fees: State governments charge to deregister the old mortgage and register the new one. As of the 2025/2026 financial year, here is what you can expect to pay:

• NSW: ~$175.70 for discharge + ~$175.70 for new registration.
• Queensland: ~$238.14 per transaction.
• Victoria: ~$125.70 (electronic) per transaction.

The calculation: Total exit costs must be recovered through savings on the new loan within 12 to 18 months to make the switch worthwhile.

Mistake 3: Not Checking Your Property Value

Your loan-to-value ratio (LVR) affects the rates you can access. Many people assume their property value hasn’t changed, but the market fluctuates.

Issues we see:

• Valuation shortfalls: If your property value has dipped, your LVR might push above 80%.
• LMI Trap: Refinancing above 80% LVR triggers Lenders Mortgage Insurance (LMI), which can cost 1% to 5% of the loan amount.
• Desktop vs. Full Valuations: Some lenders use automated “desktop” models that might undervalue your unique renovations.

Solution: Get a realistic estimate of your property value before applying. We can order upfront valuations to see exactly where you stand before a credit application hits your file.

Mistake 4: Extending Your Loan Term

When you refinance, it’s tempting to reset to a 30-year term to lower your monthly commitment. This is one of the most expensive mistakes you can make.

The 30-year trap: Resetting your clock adds years of interest to your debt.

Example ($600,000 loan balance @ 6.41%):

Scenario	Remaining Term	Monthly Repayment	Total Interest Payable
Keep Current Term	20 Years	~$4,450	~$468,000
Reset to 30 Years	30 Years	~$3,760	~$753,000
The Difference	+10 Years	Saves $690/month	Costs $285,000 extra

Better approach: Request a loan term that matches your current remaining years (e.g., 22 years). If you must extend to 30 years for cash flow, set your repayments higher voluntarily to mimic your old term.

Mistake 5: Consolidating Debt Without Addressing the Cause

Refinancing to consolidate credit cards and personal loans into your home loan can be smart. It converts high-interest debt (often 20%+) into home loan rates (~6%).

The pattern to avoid:

1. Consolidate $30,000 of credit card debt into the mortgage.
2. Feel relief from lower monthly payments.
3. Fail to close the credit card accounts.
4. Run the cards up again within two years.

The result: You now have the original $30,000 in your mortgage plus a new $30,000 on the cards. This is a cycle that destroys equity.

Better approach: Most lenders will require you to close the credit card accounts as a condition of approval. We recommend reducing your limit to $1,000 or cancelling the cards entirely to remove the temptation.

Mistake 6: Not Getting Genuine Pre-Approval

Many people start house hunting or planning renovations based on online “pre-approvals” that are system-generated. These are rarely binding.

Levels of approval:

• Online calculator: This is a marketing tool, not an approval.
• System Pre-qualification: A basic check of your self-declared income.
• Conditional approval: A credit assessor has reviewed your payslips and tax returns.
• Formal approval: The property valuation is back and the loan is fully certified.

Why this matters: Every time you apply for a loan, it leaves an enquiry on your credit report. Too many enquiries in a short period can lower your credit score by 5-10 points each time. You want one solid application, not three “test” applications.

Mistake 7: Timing It Wrong

Refinancing at the wrong moment can lead to an automatic decline, even if you are a good borrower.

Bad timing scenarios:

• Probation periods: Lenders typically want to see you past your 3-6 month probation in a new job.
• Parental leave: While possible, borrowing power is often calculated on your lower “return to work” salary.
• New business start-up: moving from PAYG to self-employed usually requires a two-year waiting period for tax returns.

Better timing: Wait until you have three months of clean bank statements (no overdraws) and stable employment. If you anticipate a career change, refinance before you resign.

Mistake 8: Not Comparing Enough Lenders

Going straight to your current bank or just one new lender limits your options. This is where the “Loyalty Tax” hits hard.

What we see: Existing customers often pay roughly 0.50% more than new customers at the same bank. On a $500,000 loan, that gap costs you $2,500 every single year.

Look beyond the Big 4: Tier 2 lenders like Macquarie, ING, or Suncorp often have faster turnaround times and more competitive rates for “vanilla” deals. Non-bank lenders like Pepper Money can be excellent for self-employed borrowers who don’t fit the standard box.

Mistake 9: Ignoring Your Loan Features

When refinancing, you might lose features you use and value. The biggest confusion we see is between Redraw and Offset.

The Tax Warning (Critical for Investors):

• Offset Account: This is a separate savings account. You can pull money out freely without affecting the tax deductibility of your loan interest.
• Redraw Facility: This is a repayment of the loan principal. If you redraw this money for a personal purpose (like a holiday), the interest on that portion of the loan is no longer tax-deductible.

Plan for continuity: Ensure your new lender offers “fast payments” (Osko) for their offset accounts. Some smaller lenders still take 24 hours to transfer funds, which can be frustrating for business owners.

Mistake 10: DIY When It’s Complex

Simple refinancing for a PAYG employee with one property is straightforward. Complex situations need expertise to avoid “declined” stamps on your credit file.

When to get help:

• Self-employed: You need a lender who understands add-backs for depreciation.
• Multiple properties: Cross-collateralisation (linking properties) can limit your ability to sell one property later without paying down the other.
• Credit issues: One missed utility bill from three years ago can block a deal with a major bank.

Why it matters: A decline from a major bank signals risk to other lenders. We structure applications to match the specific policy of the lender, ensuring the deal fits before it is submitted.

The Right Way to Refinance

Step 1: Know Your Numbers

Review your current interest rate and compare it to the market average (approx. 6.41% variable in early 2026). Check your payout figure including any discharge fees.

Step 2: Calculate True Savings

Factor in government registration fees ($125-$240 depending on your state). ensure the monthly saving covers these costs within the first year.

Step 3: Get Expert Comparison

Look at comparison rates, not just headline rates. Ask about the lender’s service levels—saving $10 a month isn’t worth it if their call center has a 2-hour wait time.

Step 4: Time It Right

Ensure your employment history is stable. If you are in a fixed rate, wait until the break cost is negligible (usually the last 3 months of the term).

Step 5: Execute Cleanly

Have your ID, payslips, and bank statements ready. Delays in providing documents are the number one reason settlements drag on.

Is Refinancing Right for You?

Refinancing makes sense when:

• You will save more than the switch costs within 12-18 months.
• You need to release equity for a renovation or investment.
• You want to separate cross-collateralised properties.
• Your fixed rate is expiring and the revert rate is too high.

Think carefully if:

• You are planning to sell the property within the next year.
• You have unstable income or recent bad credit.
• The savings are less than $50 a month.

Get a Professional Assessment

Our refinancing service analyses your current loan, compares options from over 70 lenders, and calculates your true savings including all government and bank fees.

There is no cost to find out—we are paid by the new lender, not you.

Book a free refinance review. We will tell you honestly whether switching makes sense and show you exactly what you would save.