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  • Writer's pictureVanessa Bragdon

5 Mistakes To Avoid When Refinancing

With interest rates on the move, many people are shopping around for home loans.

In January, the value of external refinancing for total housing fell 2.1%, but remained close to record highs at $18.6 billion. If you’re considering refinancing, it’s a good idea to be aware of a few pitfalls when doing your research. Here are five mistakes to avoid:


“Changing home loans is an important financial decision, which is why you need professional mortgage advice.”

Mistake #1: Only looking at the interest rate

Sure, getting a more competitive interest rate is appealing, but there are other factors to consider when comparing loans. For example, you may benefit from features such as an offset account or redraw facility, even if the interest rate is not necessarily the lowest one available.

An offset account is a bank account that’s linked to your home loan. Any money in this account is offset against the money owing on your home loan. This reduces the amount of interest you pay - which can add up to a lot of savings over time.


With a redraw facility, you can make extra repayments on your home loan, but still access the funds later if needed. This allows you to reduce your interest - so it’s another great option to consider.


Aside from these kinds of features, you may want to think about what else is important to you in a lender. Maybe it’s customer service. Or maybe it is a lender that will allow you to borrow more. Bottom line is: the interest rate is not the be all and end all.


Mistake #2: Forgetting about the fees

Don’t forget to budget for any costs involved in switching lenders. There may be mortgage discharge fees, mortgage registration fees, new application fees and Lenders Mortgage Insurance (if you owe more than 80% of the property’s value).


If you are currently on a fixed home loan, there may also be break fees. Ask your lender for clarification.


Mistake #3: Being bedazzled by cash-back offers

With so much competition for business, many lenders are offering refinance cash-back offers to lure you in. “Come hang with us and we’ll give you $4000.” Sounds awesome, right?


While we all love a cash injection, it’s important to look at the big picture and whether a home loan is appropriate for you now and in the future. Does the home loan have the features you need? And is it suitable for your financial situation and goals?


Mistake #4: Not investigating debt consolidation

If you have multiple debts on the go, it’s a good idea to speak to a mortgage broker about whether debt consolidation may be appropriate for you. This is where you essentially roll all your debts into your home loan.


Debt consolidation can be beneficial in that you have one repayment to make, instead of multiple debts to repay. The interest rate on your home loan may also be lower than on, say, personal loans or credit cards, so it’s worthwhile exploring this option.


Mistake #5: Trying to go it alone

So, you do a little Google wizardry, you find some obscure home loan provider with a rock-bottom rate and you think ‘boom – this is the home loan for me!’ Unfortunately, it’s not that simple.


Changing home loans is an important financial decision, which is why you need professional mortgage advice. A mortgage broker is across all the latest borrowing requirements and changes in the market and can guide you about which home loan is appropriate for your specific needs.


If you are looking at refinancing in 2023, get in touch with your local mortgage broker.

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