Refinancing is the term used for arranging to pay out an existing loan with a new loan. With interest rates at historical lows, many home owners, investors and business owners are lining up to refinance their loans. But is it the right move for you? The benefits to refinancing can be real, offering the possibility of savings on mortgage repayments or the opportunity to use equity to invest. Here’s some things to look out for if you’re considering making a move.
Top 5 refinancing pitfalls
1. Automatically refinancing with your current lender without shopping around.
Remember, that's what we, as your finance broker, are here for – doing all the legwork on shopping around amongst lenders to find you the best rate. You may have a good relationship with your current lender, but the loan market is very competitive and loyalty will not save you money. Take your good credit history to the lender that gives you the best rate and benefits.
2. Assuming lower rates will save you money without considering the overall costs of refinancing.
Sometimes the savings you will gain on mortgage repayments are outweighed by the costs of making the switch. We can help you calculate the costs – things like break fees, establishment fees for your new loan, legal fees, stamp duty and ongoing fees - to see if these add more to your mortgage than you would save by refinancing.
3. Procrastinating while waiting for interest rates to drop
If interest rates are currently much lower than the rate you're paying on your mortgage at present, then waiting to see if they will drop even further is a missed opportunity to save. Interest rates may go up as well as down!
4. Not having your finance broker evaluate your credit rating and financial position to assess your lending power and get you the best rate.
Everyone's financial situation changes over time, often for the better. As your finance broker, it's our job to help you put your best foot forward with the lenders. Evaluating your credit rating and financial position are key to securing the best rate and benefits for you from your new loan.
5. Falling prey to ‘honeymoon rates' which revert to a higher rate at the end of the introductory period.
Understanding the finer points of an advertised mortgage offer takes a lot of hard work. It's easy to have your head turned by what sounds like a good rate without understanding all the conditions and possible expenses. If you're considering your options with regard to refinancing your present loan, it's our job to help you choose the right loan! We're here to do all the legwork for you and get you the best rate possible for your personal financial situation, so get in touch today!