Top refinancing mistakes to avoid and how to make smarter choices

Refinancing your home loan can unlock savings, improve your interest rate, or give you access to funds for renovations.

However, mistakes during the process can cost you time, money, and peace of mind. With our help, you can confidently navigate refinancing and make decisions that align with your financial goals.

In this blog post, we’ll cover the top refinancing mistakes borrowers make and how to avoid them. 

Common refinancing mistakes you should avoid

1. Neglecting to compare rates across multiple lenders

Refinancing with your current lender may be convenient, but it could cost you over time.

Many lenders offer competitive interest rates, better features, and lower fees to attract new borrowers. You may only realise this after comparing options!

Exploring different lenders can uncover tailored solutions with better flexibility, repayment terms, and reduced costs.

This proactive approach ensures you:

• Maximise savings,
• Gain access to better loan structures, and
• Secure financial stability in the long term.

Comparing options is key to avoid unnecessary expenses and ensure your refinancing decision truly benefits you.

2. Ignoring refinancing fees

Refinancing isn’t just about securing a lower interest rate. It also involves fees and charges that can impact your savings.

Common costs include application fees, valuation fees, settlement fees, or exit penalties from your current lender. These charges add up quickly, potentially offsetting the benefits of refinancing if not carefully evaluated.

It’s essential to calculate the "break-even" point. How long will it take for your savings from the new loan to cover the refinancing costs?

Overlooking these details can lead to unexpected expenses and missed opportunities to optimise your financial outcome. Always review all costs before refinancing.

3. Switching lenders without understanding exit penalties

Switching to a new lender might seem like the best option when refinancing. However, failing to account for exit penalties can erode your savings.

Lenders often charge fees for breaking your current loan agreement, like fixed-rate break costs or discharge fees. These can add up quickly, especially if you’re in the early stages of your loan.

Before choosing a new lender, check how exit penalties might affect your savings. Knowing the costs can help you decide if switching is worth it or if staying with your current lender is a better option.

4. Overlooking the impact of loan term changes on repayments

When refinancing, many borrowers only focus on interest rates. They can overlook how changes to the loan term affect repayments.

Extending your loan term can reduce monthly payments but may significantly increase the total interest paid.

Conversely, shortening the term increases repayments but helps pay off your loan faster and saves on interest.

Evaluating how term adjustments align with your financial goals, budget, and future plans is vital. Ignoring this factor can result in financial strain or missed opportunities to save. 

Consider the long-term impact before committing to a new loan structure.

5. Forgetting to account for long-term financial goals

Refinancing decisions often focus on immediate benefits, like lower monthly repayments or accessing equity. However, overlooking your long-term financial goals can be a costly mistake. 

Consider how the new loan structure aligns with future plans like upgrading your home, investing, or retiring.

For instance, reducing monthly payments by extending the loan term might free up cash now. However, this could delay financial independence later.

Similarly, choosing a fixed-rate loan for short-term stability might limit flexibility if your circumstances change.

Refinancing should support your current needs and help you achieve broader financial objectives over time.

6. Refinancing too early or too often

Timing is crucial when refinancing your home loan.

Refinancing too early in your term or too frequently can lead to unnecessary costs that may outweigh the benefits. 

Additionally, refinancing too often can harm your credit score, as each application triggers a credit inquiry.

It’s important to assess whether refinancing aligns with your financial goals and provides genuine long-term value. A well-timed refinance can save money and improve loan terms.

However, rushing into it without careful evaluation could leave you worse off financially. Plan strategically to maximise your benefits.

Should you choose a bank or broker to refinance?

Mortgage Broker Brisbane offers a personalised approach to refinancing. We compare multiple lenders to find competitive deals that align with your goals. 

Unlike banks, which only offer their own products, we provide tailored solutions. We’re on your side, negotiating better rates and guiding you through each step. 

Let us simplify your refinancing journey. Reach out to our expert team for guidance and advice on refinancing.