Written by

Steven Lee

Mortgage Director, ODIN Mortgage & Tax

10+ years in Australian banking and mortgage lending

Last reviewed

Updated on: October 7, 2026 View profile →

10 Reasons Not to Refinance Your Mortgage

Refinancing can sound like a smart money move, but for many Australians and expats, it ends up being an expensive mistake.

If you’re chasing lower interest rates without checking the fine print, you could fall into a financial trap—losing valuable features, extending your loan term, or even paying more interest overall.

This guide walks you through the key reasons not to refinance your home, especially if you’re unsure about timing, costs, or your financial situation.

10 Times When Refinancing Could Be a Mistake

1. The Costs Are Too High

Refinancing your mortgage isn’t as simple—or as cheap—as it might seem at first glance. Many Aussies jump into a refinance hoping to save money, only to be hit with upfront costs that outweigh the benefits.

Whether you’re switching lenders or adjusting loan features, the disadvantages of refinancing often start with a long list of fees that can easily reach thousands of dollars. Let’s break it down.

Refinancing Closing Costs, Stamp Duty, and Hidden Fees

Every refinance comes with a range of costs: loan application fees, valuation fees, government charges, and in some cases, stamp duty. These fees vary depending on your lender and the state you live in.

For example, refinancing a $700,000 loan in NSW may trigger government mortgage registration fees and potential stamp duty if you’re changing ownership structures.

Refinancing can cost between $800 to over $3,000, not including break fees. Even if you’re getting a better interest rate, you need to stay in the new loan long enough to reach your break-even point. Otherwise, you could end up paying more, not less.

Prepayment Penalties or Break Costs

If you’re currently on a fixed-rate loan, watch out for break costs—also known as prepayment penalties. These are fees your lender charges for ending your existing loan early, and they’re not small.

Break costs are based on how much time is left on your fixed term, the interest rate difference, and your loan size. In some cases, they can run into the tens of thousands. For example, breaking a fixed 2.19% rate in today’s higher-rate environment can carry massive penalties.

Always request a payout figure or discharge quote from your lender before you refinance. It’s the only way to know what you’re really walking away from—and whether the numbers stack up.

Lender and Legal Fees

Refinancing means dealing with new loan setup fees, which may include application fees, settlement charges, and document handling costs.

Some lenders waive certain charges as a promo, but others pass on valuation fees, ongoing service charges, and even mortgage insurance, especially if your equity is under 20%. On top of that, you may need to pay for legal reviews, especially if your financial setup includes trusts, co-borrowers, or foreign income.

Refinancing isn’t just about chasing a better rate—it’s about knowing your true cost of switching. If the savings aren’t clear or immediate, it may be better to renegotiate with your current lender instead.

👉 Learn in detail about refinance costs: How Much Does It Cost to Refinance a Home Loan?

2. You Have Poor Credit

Refinancing with poor credit is like showing up to a job interview with a red flag pinned to your shirt. Even if you’re a great borrower in practice, lenders will judge you by your credit report first.

A lower credit score signals higher risk to lenders, which means they’ll often compensate by offering you:

Higher interest rates
Stricter loan terms
Fewer flexible features (like redraw or offset)

If your credit score has dropped since you took out your original loan, refinancing now might land you in a worse financial position, even if rates seem lower on paper.

Even one missed repayment can stay on your file for years and reduce your creditworthiness.

If your score is below average (under 620), hit pause. Refinancing won’t magically solve your problems, but improving your credit might.

Focus on:

Paying off high-interest debts
Making all repayments on time (set up auto-debits)
Reducing your credit card balances and avoiding new debt

Here’s the payoff: A 100-point increase in your credit score could open the door to thousands in savings over the life of your loan.

Tip: Use a free credit score service to track your progress. When your score hits a healthier range, re-run the numbers—you may qualify for a much better deal.

👉 Check out: Refinance Home Loan Offers in Australia

3. You’re Resetting Your Loan Term

When you refinance your Australian mortgage, most lenders roll you into a brand new 25–30 year loan term—even if you’ve already paid off 5 or 10 years on your current mortgage.

Sure, this resets your repayments to a lower monthly amount. And yes, that can feel like a win in the short term.

But here’s the catch: You’ll now be paying interest over a much longer period. And even with a lower rate, the total interest cost can blow out over the life of the loan.

Example: Let’s say you have 20 years left on your current mortgage. If you refinance into a 30-year term, that’s 10 more years of interest, which could add up to $30,000–$70,000 extra, depending on the loan size and rate.

If you’re refinancing purely for a better rate (not cash flow relief), consider:

Asking for a shorter term (e.g. 15 or 20 years)
Keeping your repayments the same to pay off the loan faster
Comparing the total interest over the full loan, not just the rate

Tip: Always request the comparison rate, which includes fees and gives a clearer view of the real cost of your new loan.

👉 Check out: How Often Should You Refinance Your Home Loan?

4. The Break-Even Point is Too High

Refinancing isn’t free—you’ll pay application fees, discharge fees, legal costs, and sometimes valuation or settlement charges. These upfront costs might be worth it if you stay in the loan long enough.

But that’s the kicker: you need to calculate your break-even point—the time it takes for your interest savings to outweigh your refinancing costs.

Example: When the Effort Outweighs the Actual Cost Savings

If it’ll take 6 years to break even and you’re planning to sell or upgrade in 3, you’ll lose money overall—even with a lower rate.

Too many Aussies refinance without doing the maths, only to regret it later. Always use a refinance calculator to map out when your savings actually begin.

Higher Long-Term Interest Could Cancel Out Short-Term Gains

Getting a lower rate today might feel like a win—but if you’re stretching out your loan over 25–30 years, you could pay more in total interest than if you’d stuck with your current loan.

And in a volatile market, that “great deal” could vanish fast.
Some lenders offer teaser rates that spike after the first year. Others may only offer the lower rate if you give up valuable features like offset or redraw.

Short-term savings ≠ long-term benefit. Especially in rising interest rate environments, that margin can disappear overnight.

You need to compare:

Total repayments over the life of the loan
All fees (upfront and ongoing)
Loan features and flexibility (offset, redraw, split options)
How long you’ll actually keep the property or loan

5. Current Loan Features Are Valuable

If you’re sitting on a low fixed-rate loan, especially one secured between 2020–2021, you may be holding one of the best deals in Aussie mortgage history.

Many of those fixed rates sit between 1.8%–2.5%, while today’s variable rates hover much higher. Breaking that fixed term now could mean:

Paying thousands in break costs
Losing a rate that still beats anything currently on the market
Gambling on uncertain future rate drops that may never come

Unless there’s a strong strategic reason to refinance (e.g. accessing equity, consolidating debt, restructuring), staying put might be the smarter move.

What You Lose When You Refinance (Beyond Just Features)

Some loan features don’t get much attention—until you lose them:

Offset accounts that cut down interest daily
Redraw facilities to access extra repayments
Unlimited extra repayments to get debt-free faster
Low or no ongoing fees

Refinancing into a “cheaper” basic loan might strip out these tools—and cost you in flexibility, control, and future savings.

Think of it like trading a smartphone with all your apps, photos, and tools for a basic phone just because it’s $5/month cheaper.

👉 Check out: Top-Up Loan vs Refinance in Australia: Key Differences and Benefits

AU Expats—Know the Risks Before Your Refinance

6. You Have a High Debt-to-Income Ratio (DTI)

Your Debt-to-Income (DTI) ratio is one of the first things lenders check when assessing a refinance application. It measures how much of your monthly income goes toward repaying debt, including your mortgage, credit cards, car loans, and personal loans.

Most lenders prefer your DTI to be below 30–40%. If your debts are eating up a large portion of your income, it signals higher risk, which can limit your options or even trigger an automatic rejection.

Example: If you earn $10,000/month but owe $4,500 in debt repayments, your DTI is 45%. That’s likely too high for most lenders, even if you have equity in your property.

What Happens If Your DTI Is Too High

A high DTI can result in:

Loan rejection, even if your credit score is solid
Higher interest rates, as lenders price in more risk
Reduced borrowing power, limiting your refinance options
Lender restrictions, such as requiring a guarantor or larger equity

Even if a refinance is technically possible, the new terms may not be worth it if they leave you worse off financially.

👉 Check out: How Much Equity Do I Need To Refinance My Mortgage?

7. You’re Facing Job Instability or Income Changes

When it comes to refinancing, lenders are looking for stability. Any sign of job instability, recent employment changes, or fluctuating income can raise red flags.

Most banks and lenders want to see 6–12 months of consistent income from the same employer or role, especially if you’re applying from overseas or as an expat returning home.

Lenders may view your situation as risky, even if you’re financially responsible, if you’ve recently:

Switched jobs or industries
Moved from full-time to contract or casual work
Taken a pay cut or changed countries.

8. Short Remaining Loan Term

If your mortgage has under 5–7 years left, refinancing may not be worth the effort.

You’ve already paid off the bulk of the interest, and now you’re in the most rewarding phase of the loan:

Most of your repayments are going directly toward paying down the principal
You’re building equity rapidly with every monthly payment
The finish line—complete ownership—is finally in sight

Refinancing at this point can undo much of that progress. It usually resets your mortgage to a much longer term. On paper, your monthly repayments might drop, but in reality:

You go back to paying mostly interest again in the early years
You stretch out your loan for decades
You risk paying thousands more in interest over time despite having nearly finished the race.

9. You’re Underwater on Your Mortgage

An underwater mortgage means your property is worth less than the amount you still owe on it. This can happen for a few reasons:

Property market downturns
Buying at the market peak
High loan-to-value ratios (LVR) with minimal deposits
Interest-only loans without enough principal reduction

Example: If your home is worth $600,000 but your mortgage is still $650,000—you’re $50,000 underwater.

In this position, refinancing becomes extremely difficult. Most lenders require at least 20% equity to approve a refinance. Without it, you’re seen as high risk.

The Risks of Refinancing With Low or Negative Equity

Even if you do manage to find a lender willing to refinance, you’ll face some serious trade-offs:

Higher interest rates, due to higher risk
Mandatory Lenders Mortgage Insurance (LMI), which can cost thousands
Limited loan features or flexibility
Upfront costs for refinancing (legal fees, application costs, valuations), which may be unaffordable or simply not worthwhile

In short, refinancing in this situation often adds to your costs, not your savings.

10. You’re Planning to Sell Within a Few Years

If you’re thinking about selling your home in the next 2 to 3 years, refinancing is rarely worth the effort. Why? Because the benefits of a lower interest rate or new loan structure take time to realise.

To make a refinance worthwhile, you typically need to stay in the loan long enough to recoup the upfront costs like application fees, discharge fees, valuation charges, and legal costs. This is known as the break-even point, and for most refinances, it’s 3–5 years.

If you’re planning to sell before then, you won’t reach that break-even point. Any interest savings you gain in the short term will likely be cancelled out by the cost of refinancing itself.

👉 Also check out:

Alternatives To Refinancing If The Timing Isn’t Right

Refinancing can be a powerful financial move—but only when the conditions are right. If you’re facing high break costs, unstable income, low equity, or a short remaining loan term, pushing ahead with a refinance could end up costing more than it saves.

The good news? You don’t need to refinance to take control of your mortgage. Here are smart alternatives that can still help you.

Renegotiate Your Current Rate

Call your lender and ask for a better rate—many will match competitor offers to keep your business. A small rate cut can save thousands without refinancing.

Make Extra Repayments

Paying more than the minimum reduces your principal faster and cuts down on interest. Even small extra amounts can shave years off your loan.

Use an Offset Account

Money in your offset reduces your loan balance for interest purposes. No paperwork—just park your savings and save automatically.

Consolidate Debts Separately

Instead of rolling other debts into your mortgage, consider personal loan consolidation or 0% credit card transfers. This avoids long-term interest costs on short-term debt.

👉 Also consider: Refinancing vs Getting a New Home Loan

AU Expats—Refinance Without Regret

Key Takeaways

Refinancing isn’t always the right move—especially if costs, credit, or timing don’t add up.⬆️
Poor credit or high debt-to-income ratios can lead to worse loan terms.⬆️
Giving up a low fixed interest rate or valuable features may cost more than you save.⬆️
A high break-even point, short remaining term, or planned sale can cancel out any benefits.⬆️
Explore alternatives like negotiating with your lender or making extra repayments instead.⬆️

10 Reasons Not to Refinance Your Mortgage