Common Mistakes When Refinancing to Lower Your Rate

Not All Rate Cuts Are Created Equal

A lower rate sounds like an obvious win, but whether it saves you money depends on what you're giving up and what you're paying to get there.

Ashburton sits in a suburb where many homeowners bought in during a tight market and locked in fixed terms that are now rolling off onto higher variable rates. That's prompting refinance conversations, and in our experience, the reflex is to chase the lowest advertised rate without checking the fine print. The problem is that the headline figure rarely tells you whether the switch is worthwhile once you factor in exit fees, application costs, and changes to loan features.

Consider someone who refinanced from a 5.8% variable rate to a 5.3% advertised rate on a loan amount of around $600,000. On the surface, that's a reduction worth exploring. But the new lender charged a $995 application fee, required a fresh property valuation at $300, and the old lender hit them with a $750 discharge fee. Total cost to switch: just over $2,000. At that rate difference, it would take roughly eight months before the interest savings outweighed the upfront cost. If they moved again within that window, they went backwards.

That's not to say refinancing isn't worth it. It often is. But the decision needs a proper loan health check that compares total cost over time, not just the rate on a website.

What You Lose When You Switch

You're not just swapping one rate for another. You're also swapping features, and some of those matter more than you think.

Offset accounts and redraw facilities both let you reduce the interest you're charged, but they work differently. An offset account sits alongside your loan and reduces the balance that accrues interest. A redraw lets you pull back extra repayments you've made into the loan itself. Some lenders advertise low rates but strip out offset functionality or limit redraw access. If you've been parking your savings in a full offset and switch to a loan with partial offset or redraw only, you could end up paying more interest despite the lower headline rate.

In Ashburton and surrounding Boroondara areas, we regularly see dual-income households using offset accounts to manage variable cashflow, particularly when one partner works in a seasonal or commission-based role. Losing that feature to save 0.2% on the rate can cost more than the refinance saves, especially if emergency access to those funds becomes restricted under redraw rules that some lenders tighten without much notice.

The Break Cost Trap When Coming Off Fixed

If your fixed rate period is ending in the next few months, you're probably not locked in anymore. But if you're still inside that term and want to leave early, break costs can wipe out any saving a new rate might offer.

Break costs are calculated based on the difference between your fixed rate and the current wholesale rate your lender can get for the remaining term. If rates have dropped since you fixed, that difference can be significant. We've seen break costs north of $10,000 on loans around $500,000 with two years left to run. The only time breaking early makes sense is if you're releasing equity for something income-generating, moving to a significantly lower rate with a long enough runway to recover the cost, or selling the property anyway.

If you're coming off a fixed rate in the next 90 days, most lenders let you lock in a new rate without penalty during that window. That's the moment to act, not six months beforehand when break costs are still live.

When Refinancing Actually Makes Sense

Refinancing to access a lower rate works when the numbers prove it and the features align with how you use the loan.

Start with the total cost to switch: application fees, valuation, discharge from the old lender, and any ongoing fee differences between the two products. Then calculate how long it takes for the interest saving to exceed that upfront cost. If you're planning to move house, renovate and refinance again, or pay the loan down aggressively in the next couple of years, a longer breakeven period doesn't work in your favour.

The second part is making sure the new loan structure supports what you're trying to do. If you're holding the property long-term and want to reduce interest as quickly as possible, a low-rate variable loan with full offset and unlimited extra repayments makes sense. If you're planning to access equity in the next few years to buy an investment property or fund a renovation, you need a loan that lets you redraw or increase the limit without a full reapplication. Some low-rate products don't.

We also see Ashburton homeowners who refinance not just for rate, but to consolidate other debt or shift to a lender with more flexible serviceability policies ahead of buying their next property. In those cases, rate is one input among several, and the broader loan structure matters more than the decimal point.

Timing the Refinance Application

You don't need to wait until your fixed term ends to start the process, but you do need to time the application so settlement aligns with the expiry date.

Most refinance applications take three to five weeks from submission to settlement, assuming there are no valuation issues or serviceability gaps. If your fixed rate ends in eight weeks and you apply today, you're in the window. If it ends in four months and you apply now, you'll either settle early and trigger break costs, or you'll need to extend the approval and risk the rate you locked in expiring.

The other timing consideration is what's happening with the variable rate cycle. If the Reserve Bank is cutting rates and your current lender is passing those cuts through in full, waiting a few months might deliver the same result without the cost or effort of switching. That's a judgment call, and it depends on how much margin your current lender is taking and whether they've historically moved quickly when the cash rate shifts.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers, compare what you're currently paying against what's available, and tell you whether refinancing makes sense or whether you're already on a structure that's doing the job.

Frequently Asked Questions