Common Mistakes When Refinancing Your Home Loan

The refinancing process isn't as straightforward as most lenders suggest in their online calculators.

Switching lenders to reduce your rate or access equity sounds like a quick decision, but the application itself involves valuations, employment checks, and timing issues that can stretch out for weeks or collapse entirely if you miss a step. Borrowers often assume refinancing mirrors their original purchase loan, but lenders treat the application differently, and small oversights can cost you the rate you were promised or delay settlement when you need funds available.

Applying Without Checking Your Current Loan Terms

You can't refinance without knowing what it costs to leave your current lender. Most home loans carry discharge fees between $150 and $400, and if you're coming off a fixed rate period early, break costs can reach tens of thousands depending on how much rates have moved since you locked in. A borrower on a fixed rate at 5.8% trying to refinance when the wholesale rate has dropped to 4.2% might face a break cost of $15,000 on a $500,000 loan with two years remaining, which wipes out the savings from switching.

Before you lodge a refinance application, request an exit statement from your current lender showing all fees, break costs if applicable, and your exact payout figure. If you're within six months of your fixed rate expiring, waiting often makes more sense than paying to leave early. Some lenders will negotiate a rate reduction to keep you, particularly if you're a reliable borrower with equity in the property.

Assuming Your Property Valuation Will Match Your Expectations

Lenders order a valuation as part of every refinance application, and the outcome determines your loan-to-value ratio and whether you need to pay lenders mortgage insurance. A property you believe is worth $750,000 might come back valued at $680,000, which changes your borrowing capacity and can disqualify you from the loan you applied for. Desktop valuations, which many lenders use to speed up approvals, rely on recent sales data in your area and often return conservative figures, particularly in suburbs where sales are infrequent or property types vary widely.

Consider a borrower refinancing an older-style home in a suburb where most recent sales were renovated properties or new builds. The valuation comes back $80,000 lower than expected, pushing the loan-to-value ratio from 70% to 78%. The lender either declines the application or requires mortgage insurance, adding $5,000 in upfront costs the borrower hadn't budgeted for. In that scenario, the borrower can either pay down the loan to reduce the ratio, challenge the valuation with comparable sales evidence, or wait and build more equity before refinancing.

If you're relying on a specific valuation to access equity or avoid insurance costs, research recent sales in your street and surrounding area before applying. Lenders won't always accept a challenge, but if the valuation is clearly out of step with the local market, you can request a review or a full physical valuation instead of a desktop assessment.

Changing Jobs or Income Structure Mid-Application

Lenders assess your income at the time of application and again just before settlement. If you switch jobs, move from permanent to contract work, or take parental leave between lodgement and settlement, the lender can withdraw the approval. A borrower who accepts a new role with a three-month probation period will often be declined, even if the salary is higher, because most lenders require you to be past probation before they'll count the income.

In our experience, this catches self-employed borrowers and contractors more often than PAYG employees. A contractor finishing one contract and starting another mid-application might assume the income continuity is obvious, but lenders treat any gap or change as a risk. If you're planning a job change, wait until after refinancing settles, or at minimum, speak with your broker before accepting the new role so you understand how it affects your approval.

Lodging Multiple Applications at Once

Applying with several lenders simultaneously to compare offers sounds efficient, but each application triggers a credit enquiry that appears on your credit file. Multiple enquiries in a short window signal financial stress to lenders, and some will decline your application purely based on the number of recent searches, regardless of your income or equity position. Each enquiry can also reduce your credit score temporarily, which affects the rate you're offered.

A loan health check with a broker lets you compare offers without lodging formal applications. Brokers can run scenarios across multiple lenders, identify which products suit your situation, and lodge a single application with the lender most likely to approve at the rate you need. If that lender declines or changes terms, you still have other options without your credit file showing five enquiries in one month.

Not Reviewing What Features You Actually Use

Refinancing to a lower rate makes sense, but if the new loan removes features you rely on, you can end up paying more in the long run or losing flexibility you didn't realise you needed. Offset accounts, redraw facilities, and the ability to make extra repayments without penalty are common features on variable loans but often restricted or unavailable on fixed rate or low-rate packages.

A borrower refinancing from a variable loan with a full offset account to a fixed rate loan at 0.4% lower might assume the rate saving is worth it. If they were keeping $30,000 in the offset, which was saving them roughly $1,800 per year in interest at a 6% rate, and the new fixed loan has no offset, they lose that benefit. The rate saving on a $500,000 loan is around $2,000 per year, but without the offset, they're only gaining $200 annually and losing the flexibility to access those funds without redrawing.

Before you commit to a new loan, compare the features you currently use against what the new product offers. If you regularly make extra repayments, check whether the new loan allows it and whether there's a cap. If you use an offset account, confirm the new loan includes one and whether it offsets 100% of the balance or only a portion.

Underestimating the Time Required to Settle

Refinancing typically takes between three and six weeks from application to settlement, but delays are common. Lenders might request additional documents, valuations can take longer in regional areas, and settlement dates depend on your current lender's discharge process. If you're refinancing to access equity for a specific purpose, like a property purchase or renovation, assume the longest timeframe and have a backup plan if settlement is delayed.

Borrowers refinancing to consolidate debt or fund a time-sensitive expense sometimes lodge the application too late and end up needing bridging finance or a personal loan to cover the gap. If you're refinancing an investment property to access equity for another purchase, settlement timing becomes even more critical because you might have a contract with a fixed settlement date that can't be pushed back.

Refinancing for the Wrong Reasons

Switching lenders costs money and time, and if the benefit doesn't outweigh the cost, refinancing leaves you worse off. A borrower saving $600 per year by refinancing to a marginally lower rate might spend $1,200 in application fees, valuation costs, and discharge fees, meaning they don't break even for two years. If rates drop further or they sell the property within that window, they've paid to refinance for no gain.

Refinancing makes sense when you're accessing equity for a clear purpose, reducing your rate by a meaningful margin (typically 0.5% or more), or switching to a loan structure that improves your cash flow or tax position. If you're refinancing purely because another lender contacted you with a rate offer, run the numbers on total costs and savings before you commit. Sometimes renegotiating with your current lender achieves the same outcome without the expense and paperwork of switching.

If you're unsure whether refinancing suits your situation, or you want to know which lenders will approve your application without lodging multiple enquiries, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions