5 Costly Refinancing Mistakes and How to Avoid Them

Refinancing your home loan can be one of the smartest financial moves you make, potentially saving you tens of thousands of dollars. However, many homeowners make mistakes that can turn a good decision into a costly one.

Mistake #1: Only Comparing Interest Rates

The advertised rate is just part of the story. Always compare the comparison rate, which includes fees and charges. A loan with a low rate but high fees may cost more overall than a slightly higher rate with fewer fees.

Example: A loan at 5.89% with $395/year in fees vs 5.99% with no ongoing fees. On a $500,000 loan, the "cheaper" rate actually costs you more.

Mistake #2: Forgetting About Break Costs

If you're on a fixed rate, breaking your loan early can result in significant break costs, sometimes tens of thousands of dollars. Always calculate these costs before deciding to refinance.

Mistake #3: Extending Your Loan Term

When refinancing to a new 30-year loan, you might lower your monthly payments but end up paying much more in interest over the life of the loan. Try to keep your original end date.

Example: Refinancing a $400,000 loan with 20 years remaining back to 30 years could cost you an extra $80,000+ in interest.

Mistake #4: Not Considering All Costs

Refinancing involves various costs including discharge fees, application fees, valuation fees, and settlement costs. Ensure the savings outweigh these expenses.

Mistake #5: Refinancing Too Often

While it's good to review your loan regularly, refinancing too frequently can rack up fees and affect your credit score. Generally, you should plan to stay with a loan for at least 2-3 years.

The Smart Approach

Work with a mortgage broker who can calculate the true cost of refinancing and ensure you're actually coming out ahead.

Considering refinancing? Use our savings calculator or get a free assessment from our team.