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When is refinancing a bad idea?

Bayley Clarke · Mortgage broker on the road · Last checked 27 August 2026 · 3 min read

The 66 second version. The rest of this page is the detail underneath it.

First, know why you're moving

A lot of people refinance for different reasons, and the reason is the thing that gets weighed against the cost. Three come up constantly:

A lower rate. The obvious one, and the one most people mean when they say refinance. It's also the one that's easiest to get wrong, because a rate difference on its own isn't a number you can make a decision with.

The maximum amount you can pull out in the form of equity. Here the point isn't the rate at all. It's access.

Changing what your minimum repayments are by resetting the loan term back to 30 years. That one has a page of its own: does refinancing put me back to a 30 year loan term?

There's a lot of different motivations as to why you want to refinance. The bad idea isn't any one of them. The bad idea is refinancing without one, because then there's nothing sitting on the other side of the switching costs.

The rule of thumb: no benefit, no move

However you got to the idea, the same test applies at the end of it. If there's no financial benefit once you factor in switching costs, it's not going to be worth it.

My rough budgeting number for those costs is anywhere between $1,000 and $1,100, even sometimes $1,200 per property to switch banks. That's a working figure for planning, not a quote, and it's per property, so two securities roughly doubles it. What's actually inside it gets its own page: what does refinancing actually cost?

And if what you're weighing is a rate difference specifically, the arithmetic is one line and it's already written down: is it worth refinancing for a 0.25% rate difference? That page runs the numbers at a few loan sizes. This page is the decision that sits above it: does this move have a point at all.

The 0.1% chase, or when the juice isn't worth the squeeze

Here's where it most often turns into a bad idea. You're chasing 0.1% off the rate. It looks like a win because the number is smaller than the one you're on. But after the cost of switching, it's going to take you two years to make up that difference anyway. So then it wouldn't be worth it.

The move just never had enough in it to pay for itself in any sensible timeframe, and two years is a long time to wait to be repaid for a move you didn't need to make. That's the whole judgement in one sentence: the juice isn't worth the squeeze.

Flip it around and the same test tells you when the move is a good idea. A benefit big enough that the switching cost stops being the deciding number. Or a motivation that isn't about rate at all, like the equity you need to get at. Either of those clears the bar. A tenth of a percent, on its own, generally doesn't.