Common Mistakes When Refinancing to Cut Repayments

Refinancing to reduce monthly payments means restructuring your loan to lower the amount you pay each month.

For dentists, this usually involves switching to a lender offering a lower variable rate or negotiating a reduction with your current lender. The goal is to reduce cashflow pressure without necessarily extending your loan term or reducing how quickly you pay down debt.

Many dentists we work with refinance after their fixed rate period ends and they find themselves on a rate that's 1.5% to 2% higher than what new borrowers are accessing. Others refinance when their practice expenses increase or they're planning to reduce clinical hours. In both cases, the driver is the same: monthly repayments no longer fit comfortably within the income structure.

Consider a prosthodontist with a $750,000 loan on a rate of 6.8%. If they refinance their home loan to a lender offering 5.9%, monthly repayments drop by around $450. Over a year, that's more than $5,000 returned to cashflow without changing the loan term or reducing equity contributions.

Why Dentists Refinance to Lower Monthly Costs

Dentists refinance to reduce monthly payments when income becomes irregular, expenses shift, or the existing loan no longer suits how the practice or household operates.

You might be transitioning from full-time clinical work to part-time or taking on a partnership with upfront capital contributions. You might be managing increased equipment finance, staff wages, or private school fees. In those situations, a lower monthly repayment provides breathing room without requiring you to sell assets or restructure your practice.

In our experience, dentists who refinance to reduce monthly costs are often trying to preserve liquidity while maintaining investment positions. They're not trying to extend their debt indefinitely. They want to reduce the monthly outgoing so they can manage a temporary income dip, fund a second property deposit, or cover a large one-off expense without drawing down all available offset funds.

A periodontist we worked with recently was reducing clinical days to focus on teaching and mentoring. Their household income dropped by around $60,000 annually. Rather than sell their investment property or stop contributing to super, they refinanced both their owner-occupied and investment loans to lenders with lower rates. Monthly repayments across both properties dropped by $620, which covered most of the income reduction. The loan terms stayed the same, and they kept their offset accounts.

The Difference Between Rate Reduction and Loan Extension

Reducing your monthly payment by lowering your interest rate is not the same as extending your loan term to spread repayments over more years.

When you refinance to a lower rate, you reduce the interest portion of each repayment. The principal portion increases slightly, so you're paying off the loan faster, not slower. Your monthly repayment drops, and your loan term either stays the same or shortens slightly depending on whether you adjust repayments.

Extending your loan term reduces monthly repayments by spreading the same debt over more years. You'll pay more interest over the life of the loan, even if the rate stays the same. This approach is sometimes necessary, but it's not the same strategy as refinancing to access a lower rate.

When dentists come to us wanting to reduce monthly payments, we look at rate reduction first. If the rate is already competitive and the issue is purely cashflow, we might discuss extending the term on an investment loan while keeping the owner-occupied loan term unchanged. That way, the tax-deductible debt is extended, and the non-deductible debt continues to reduce as quickly as possible.

How Lower Rates Affect Repayments Without Changing Loan Terms

A reduction of 0.5% on a $600,000 loan typically reduces monthly repayments by around $180, depending on the remaining loan term.

If you're on a variable rate of 6.5% and refinance to 6.0%, you're saving around $2,160 per year. That's without extending your loan term or reducing offset balances. The loan will also be paid off slightly sooner because more of each repayment goes toward principal.

For dentists with both owner-occupied and investment loans, refinancing both can produce a combined saving of $400 to $600 per month. That's enough to cover a new equipment lease, increased practice rent, or additional superannuation contributions without altering your investment strategy.

When you refinance, most lenders will recalculate your repayments based on the remaining loan term. If you have 22 years left on a 30-year loan, the new repayments will be calculated over 22 years. You won't automatically extend back to 30 years unless you specifically request it. If you want to keep paying the same amount you were before the refinance, that's worth mentioning to your broker. The extra repayments will reduce your principal faster and shorten the loan term further.

Offset Accounts and Refinancing Flexibility

Offset accounts reduce the interest you're charged without locking funds away, and most variable loans include them at no extra cost.

When you refinance to reduce repayments, you want to make sure your new loan includes an offset account linked to the same transaction account you're currently using. That way, your salary, practice distributions, and other income continue to offset your loan balance daily, reducing interest charges further.

Some lenders offer partial offset accounts that only offset 40% to 60% of the balance. Others charge monthly fees for full offset functionality. For dentists, a full 100% offset account with no monthly fee is standard, and you shouldn't accept less unless there's a significant rate advantage that outweighs the offset reduction.

If you're refinancing both an owner-occupied and investment loan, you'll want separate offset accounts linked to each. That way, you can clearly demonstrate which funds are being used to reduce which loan, which matters if the ATO ever reviews your investment loan deductions. Mixing offsets across loan purposes creates documentation issues and can affect your ability to claim interest as a deduction.

Fixed Rate Expiry and Refinancing Timing

When your fixed rate period ends, your loan typically reverts to your lender's standard variable rate, which is usually higher than the rate offered to new borrowers.

This is the most common refinancing trigger we see with dentists. If your fixed rate was 2.1% and you revert to a variable rate of 6.8%, your monthly repayments can increase by $1,500 or more on a $700,000 loan. Refinancing before the fixed period ends allows you to lock in a new rate or move to a competitive variable rate without the repayment shock.

Most lenders allow you to apply for a refinance up to six months before your fixed rate expires. The new loan settles on or just after your fixed period ends, so you avoid break costs and move directly to the new rate. If you wait until after the fixed period ends and you're already on the higher variable rate, you can still refinance, but you'll be paying the higher rate during the application and settlement period.

Some dentists prefer to switch to a variable rate after their fixed period ends because it gives them the flexibility to make extra repayments or redraw funds without restrictions. Others prefer to fix again if they want repayment certainty while managing practice debt or planning parental leave. Both approaches can reduce monthly repayments compared to sitting on a revert rate.

Refinancing Costs and How They Affect Monthly Savings

Refinancing typically costs $1,500 to $3,000 in discharge fees, application fees, valuation fees, and settlement costs.

If you're saving $400 per month by refinancing, you'll recover those costs in four to eight months. After that, the saving flows directly to your cashflow. If you're only saving $100 per month and the refinance costs $2,500, it will take more than two years to recover the upfront expense, which makes refinancing less attractive unless you're also gaining access to offset accounts, redraw facilities, or other features your current loan doesn't offer.

Some lenders offer to capitalise refinancing costs into the new loan, which means you don't pay them upfront. The costs are added to your loan balance, and you pay interest on them over time. This can help if you're refinancing specifically to improve cashflow and don't want to use offset funds to cover upfront costs. Just make sure the monthly saving justifies the slightly higher loan balance.

For dentists refinancing multiple loans, discharge fees apply to each loan being closed. If you're refinancing both an owner-occupied and investment loan with different lenders, you might pay two separate discharge fees. Consolidating both loans with a single lender can reduce the total cost and simplify your repayment structure, though it's worth checking whether consolidation affects your ability to claim interest deductions on the investment portion.

When Refinancing Makes Sense and When It Doesn't

Refinancing to reduce monthly payments makes sense when the rate reduction is at least 0.4% to 0.5% and you plan to keep the loan for at least two years.

If your current rate is already competitive and you're paying a low variable rate with offset functionality, refinancing might cost more than it saves. In those cases, a loan health check can confirm whether your current loan structure still suits your situation or whether small adjustments, like splitting part of the loan to fixed, would deliver the outcome you're after without a full refinance.

Refinancing doesn't make sense if you're planning to sell the property within 12 months, if your loan balance is very small, or if your current lender is willing to reduce your rate to match what's available elsewhere. Some lenders will negotiate, especially if you've been with them for several years and have a strong repayment history. It's worth asking your broker to approach your current lender before committing to a refinance.

Dentists who are about to take on significant practice debt, apply for equipment finance, or reduce their income for parental leave should consider refinancing before those changes take effect. Your borrowing capacity is assessed based on your current income and liabilities, so refinancing while your income is still high and your debt is manageable gives you access to the most competitive rates and loan features.

Call one of our team or book an appointment at a time that works for you to discuss whether refinancing fits your current situation and what rates are available based on your loan balance and property location.

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