Common Mistakes When Refinancing Your Home Loan

Not Every Loan Gets Approved

Refinancing requires you to meet lending criteria from scratch, not just prove your loan is being paid on time. Lenders assess your income, expenses, credit file, and the property value as if you were applying for a new loan. Many teachers assume their track record of on-time repayments guarantees approval, then find themselves declined because their circumstances changed or the property valuation came in lower than expected.

Consider a support teacher who took out a loan four years ago with a 10% deposit. She wanted to refinance to a lower rate now that her fixed period had ended, but her hours had reduced from full-time to 0.8, and she had taken on a car loan and some personal debt to cover a period of parental leave. Her current lender never reassessed her, but the new lender factored in the reduced income and higher commitments. She didn't qualify for the loan amount she already had, let alone a refinance with a lower rate.

The difference between staying with your current lender and switching to a new one is that switching forces a full credit assessment. Your lender will want updated payslips, tax returns if you have side income, and a current valuation of your property. If any of those elements have shifted since you first borrowed, your refinance application may not proceed.

Income Changes That Lenders Notice

Lenders calculate your borrowing capacity using your current income, not what you earned when you first took out the loan. Teachers moving from full-time to part-time, taking a career break, or working as casuals will face closer scrutiny. Even a recent promotion can cause delays if the income increase isn't fully documented with recent payslips or a letter from your employer.

In our experience, teachers returning from parental leave often find themselves in a holding pattern until they have three months of consistent pay. Lenders want to see that the new arrangement is stable, not just a verbal agreement. If you've gone back at 0.6 rather than full-time, the lender will use that lower figure when calculating how much you can borrow.

Side income from tutoring, casual relief teaching, or other work can be included, but most lenders require at least six months of history and proof that the income is ongoing. A few payslips from a tutoring agency won't carry the same weight as a year of consistent earnings. If you're planning to refinance your home loan, make sure your declared income matches what you can document.

Property Valuation Risk

Your property needs to be worth enough to support the loan you're refinancing into. If values in your area have dropped or if the valuer's assessment comes in lower than expected, you may not have enough equity to proceed. This is particularly relevant for teachers who bought with a small deposit or in areas where prices have softened.

Lenders typically order a desktop valuation or kerbside appraisal rather than a full inspection. These valuations can be conservative, especially in regional areas or where recent comparable sales are limited. If the valuation falls short, you may need to provide additional funds to meet the lender's loan-to-value requirements, or the application may be declined.

In a scenario where a primary teacher refinanced a unit purchased three years earlier, the original loan was written at 90% loan-to-value with lenders mortgage insurance. The valuation came back $30,000 lower than the purchase price, leaving the loan-to-value ratio above 90%. The new lender required her to either pay down the loan or accept a higher rate tier. She ended up staying with her current lender and requesting a rate reduction instead, which avoided the valuation issue entirely.

Credit File and Existing Debt

Your credit file is reassessed during every refinance application. Missed payments, defaults, or multiple credit enquiries in a short period will affect your eligibility. Even if those issues didn't exist when you first borrowed, they matter now. Lenders also look at how much you owe on credit cards, car loans, and buy now pay later accounts. They assume you're using the full limit on every card, regardless of your actual balance.

A high school teacher with two credit cards totalling $20,000 in available credit found that the cards alone reduced his borrowing capacity by around $90,000, even though he paid them off in full each month. The lender's serviceability calculation treated the cards as if they were maxed out. Closing one card before applying lifted his capacity enough to proceed with the refinance.

If you've taken on new debt since your original loan was approved, factor that into your refinance plan. Pay down or close accounts you don't need, and avoid applying for new credit in the months leading up to your refinance application.

Employment Stability and Probation

Most lenders require you to be out of probation before they will approve a refinance. If you've recently changed schools, moved from permanent to contract, or started a new role, you may need to wait until probation ends. Some lenders will consider applications from teachers still in probation if the role is ongoing and you have a strong employment history in the same field, but that's not universal.

For teachers considering a home loan refinance after switching from state to independent or Catholic systems, the change in employer can raise questions even if your role and salary are similar. Lenders want to see stability, and a recent job change may delay the application until you have a few payslips and confirmation that the role is permanent.

Contract teachers need at least six months remaining on their current contract, and ideally a history of contracts being renewed. If your contract ends in two months and there's no indication of renewal, most lenders will decline the application or require a co-applicant with stable income.

When Refinancing Doesn't Make Sense

Not every refinance is worth the cost. If you're within two years of paying off your loan, the savings from a lower rate may not cover the application fees, valuation costs, and discharge fees. Similarly, if you're planning to sell the property in the next 12 months, refinancing may lock you into a loan you'll exit shortly after, potentially incurring break costs if you move to a fixed rate.

Teachers who refinance purely to consolidate debt into their mortgage should weigh the long-term cost against the short-term cashflow relief. A $15,000 car loan paid over three years at 8% will cost less in total interest than the same debt spread over 25 years at 6%, even though the monthly repayment is lower. If consolidation is part of your refinance, make sure you're using the savings to pay down the loan faster, not just freeing up cash.

You don't need to refinance to access a lower rate. Many lenders will reduce your rate if you ask, particularly if your fixed rate period is ending and you're rolling onto a higher variable rate. A rate review with your current lender avoids the valuation risk, credit check, and documentation requirements of a full refinance. If your circumstances have changed in a way that might affect your eligibility, this is often the less risky path.

Call one of our team or book an appointment at a time that works for you. We'll review your loan, check your eligibility before you apply, and make sure a refinance is the right move given where you are now.

Frequently Asked Questions