Avoid These 5 Mistakes When Refinancing for a Lower Rate

Refinancing to a lower interest rate can save you thousands each year, but timing it wrong or missing key features can undo those savings.

Most lenders offer their sharpest rates to new borrowers, which means your current lender probably isn't giving you their most competitive offer. The gap between what you're paying and what's available to a new customer can sit anywhere between 0.20% and 0.80%, and that difference compounds over the life of your loan. If your fixed rate has recently expired, that gap is often wider again.

Mistake 1: Refinancing for Rate Alone Without Checking Offset and Redraw Access

A lower rate matters, but not if you lose the features that make your loan work with how you actually manage money. The rate is one input. The structure is what determines how much interest you pay over time.

Consider a software engineer on a variable rate of 6.30% with a loan amount of around $600,000 and a fully offset savings account holding $80,000. They refinance to a lender offering 5.90%, but the new loan includes only partial offset or redraw with restricted access. They've saved 0.40% on the full loan amount but lost the benefit of offsetting $80,000, which was effectively saving them interest on that portion. The net outcome depends entirely on how the new loan treats that cash, and in many cases, the total interest paid goes up, not down.

When comparing offers, calculate the effective rate after accounting for offset balances, redraw limitations, and any fees tied to accessing your own funds. Some lenders restrict redraw during construction, others cap offset accounts per loan, and a few charge for additional offset accounts if you're building a portfolio. If you're planning to access equity for investment property purchases down the line, you need a loan structure that supports that without requiring another refinance.

Mistake 2: Ignoring the Timing If Your Fixed Rate Period Is Ending

If your fixed rate is ending in the next three months, you're in the strongest position to refinance without penalty. Waiting until after the fixed period expires usually means rolling onto your lender's standard variable rate, which is rarely competitive.

Most fixed rate break costs are calculated based on the difference between your fixed rate and the lender's current wholesale cost of funds for the remaining term. If you're within 90 days of expiry, that remaining term is short enough that break costs are often negligible or waived entirely. Once you roll onto the variable rate, you lose that window.

Start the refinance process around 120 days before your fixed rate ends. That gives you time to compare offers, submit your application, and settle the new loan just as the fixed term concludes. If you're already on a variable rate and it's been more than 12 months since you last reviewed your loan, the time to act is now. Rates are available that sit well below what most borrowers locked in two or three years ago, and lenders are pricing aggressively to attract refinances.

If you've recently come off a fixed rate and want to explore your options, the fixed rate expiry page covers what happens next and how to position yourself for a smoother transition.

Mistake 3: Not Reviewing Your Loan Amount Before You Apply

Refinancing is also the moment to decide whether you want to keep your loan amount as it is, reduce it, or increase it to access equity. You can't easily change your mind once the application is submitted.

In one scenario, a software engineer refinanced their owner-occupied loan to a lower rate but didn't consider that they'd want to buy an investment property within 12 months. Six months later, they applied to access equity and had to go through a second refinance process, paying another set of application fees and going through another valuation. If they'd structured the refinance to release equity upfront or at least confirmed the loan allowed for future top-ups without a full refinance, they'd have saved time and several thousand dollars in costs.

If you're considering buying your next property or expanding into investment, think through whether you want to access equity now or set up a loan structure that makes it straightforward when you're ready. Refinancing twice in two years is inefficient. Refinancing once with a clear plan for the next 24 months is not.

Mistake 4: Assuming All Lenders Treat Your Income the Same Way

Software engineers often have income structures that include base salary, bonuses, RSUs, and sometimes contract or side income. Not all lenders assess that income the same way, and the lender offering the lowest rate might not be the one that approves the loan amount you need.

Some lenders will include 100% of your bonus if it's been consistent for two years. Others cap it at 50% or exclude it entirely. RSUs are treated differently again, some lenders won't touch them, others will include them after vesting with a discount applied. If your income is weighted toward variable components, the lender with the sharpest advertised rate might not be the one that actually works for your situation.

When you refinance, the lender reassesses your income and expenses from scratch. If your income has increased since you first took out your loan, or you've paid down other debts, your borrowing capacity might be higher than you think. If your expenses have crept up or your income mix has shifted, it might be lower. Running the numbers before you apply avoids surprises mid-process.

For more on how lenders assess different income types, the understanding your income page breaks down what gets counted and what doesn't.

Mistake 5: Not Comparing the Total Cost of the Refinance Process

A lower rate is only useful if the total cost of switching doesn't eat into your savings. Discharge fees from your current lender, application fees for the new loan, valuation costs, and potential settlement fees all add up.

Most refinances will cost you between $800 and $1,500 in unavoidable fees, even if the new lender offers incentives like fee waivers or cashback. Some lenders advertise no application fees but then clip you on higher ongoing fees or less competitive offset terms. Others offer cashback that looks attractive but locks you into a rate that's only sharp for the first year before reverting to something ordinary.

Calculate how long it takes for the rate saving to cover the cost of switching. If you're saving 0.50% on a loan amount of $500,000, that's $2,500 per year. If the refinance costs you $1,200, you're ahead after six months. If you're saving 0.20% on the same amount, that's $1,000 per year, and it takes over a year just to break even. The math changes depending on your loan size, the rate difference, and how long you plan to hold the property.

If you're refinancing an investment loan or looking at your overall loan structure, the investment loan refinancing page covers what to watch for when the property isn't your primary residence.

Refinancing works when the rate, the features, and the timing all line up with where you're headed. If you're comparing offers or want to confirm whether a refinance makes sense for your situation, call one of our team or book an appointment at a time that works for you.

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