Refinancing a home loan may appear as a smart and prudent financial step. Moreover, it indeed often yields tangible benefits, such as reductions in interest rates, monthly repayments, and better loan terms. Still, without due consideration, people may fall into a few common traps and mistakes. Being aware of what to avoid means the ability to maximise your gains when deciding to refinance. Here are some of the key pitfalls to watch out for whether working with a mortgage broker in Australia or on your own.
1. Not Considering All Costs Involved
Lower numbers always look like shiny gems to interested crows. But focusing only on a better interest rate is a big mistake. There are always costs involved when refinancing. And don’t wait till it’s too late for you to realise it. Lenders may charge an exit fee, application fee, or a break cost apart from the interest rate. There are even more extra costs a borrower may face.
Tip: Think things through before you make the leap – consider costs specifically. Better yet, contact a mortgage broker to help you figure out whether refinancing is worth it.
2. Failing to Compare Loan Products
Do you always settle for the first product you see? Well, don’t. That’s also true for loan products. When it comes to choosing any product, compare, compare, and compare some more. Weigh your options. Check out several loans from different lenders, see what makes each more beneficial to get the best deal possible.
Tip: Use comparison websites or resort to a broker’s services. Don’t rush. Instead, check several options and compare their features, rates, and terms before making a decision.
3. Ignoring Loan Features
You would be surprised how often people disregard loan features and only consider the interest rate. Offset accounts, redraw facilities, and the ability to make repayments as frequently as you like are just some of the features that can be just as important as the rate. A basic no-frills loan may slightly reduce your interest expenses, but you may miss the opportunity to offset your savings against your mortgage. You may also lose thousands of dollars in repayments.
Tip: You should only consider loan features that are important to you. If you are willing to learn, you can ask your broker to explain how different features could be helpful in your situation.
4. Extending the Loan Term Without Realising
Refinancing to a lower interest rate might save you money, but extending your loan term without noticing will negate those savings. At the time when you refinance, some lenders will reset your loan term to the full original length which usually is 25-30 years. Keeping that in mind, you will pay a lower monthly repayment, but you will also be paying interest for a more extended period which might cost you more.
Tip: Pay attention to the length of your new loan term. If you’ve already paid off several years of your loan, try to keep the remaining term the same.
5. Not Refinancing Soon Enough
Sometimes, borrowers get stuck waiting for the perfect loan. A loan with lower interest rates, one with better features – one might keep waiting for these and eventually end up not refinancing at the right time. Borrowers might also find the process overwhelming and procrastinate instead. The longer you wait for the perfect moment, the more money you lose.
Tip: Are current interest rates a lot lower than what you’re paying? Or is there a loan with better features? Consider refinancing now. Consult with a mortgage broker in Australia to help you time your refinance more effectively.
6. Not Being Prepared for Credit Checks
Home loan refinance applications involve a credit check of applicants. If you have a history of skipping paying loans or defaulting, the chances of your application being declined are very high. Also, frequent multiple credit checks can ruin your credit history and make it hard to get a refinancing loan.
Tip: Hire the services of a broker who will advise you on your current credit history and help you fix any issues that might affect your attempts to get a home loan refinancing.
7. Underestimating the Paperwork Involved
Paperwork will always be a part of refinancing. This typically means providing proof of your income, details of your existing debts, and information on the property value. Most find that it takes more time and effort than they thought to get everything together. In the worst-case scenario, a lack of communication with your lender can see the process slowing to a crawl or being delayed altogether.
Tip: Be conscientious and get all of your documents organised early on. Using a mortgage broker in Australia can streamline this process as well, as they can help ensure you know exactly what you need to provide.
8. Overlooking Future Financial Goals
Refinancing should be in line with your financial objective; however, homeowners often ignore this point. Indeed, in case you plan to renovate, pay off the loan in the nearest period, or sell the house within a few years. Remember that refinancing is now always the best solution.
Tip: Before refinancing the property, make sure to think about how it can impact your future decisions. A broker will help assess if refinancing is a good option or can offer any replacements.
Working with AFMS Group
At AFMS Group, we deliver customised financial solutions, which include refinancing. Our team of experts cooperates with you at every stage to make your refinance be in line with your expectations. Our mortgage brokers in Australia eliminate the risks of common refinance mistakes and let you find the best loan offer for your case. Reach out to AFMS Group right now to discover how to easily refinance your home.
