Tips and Traps When Refinancing Your Mortgage
On February 25, 2012
If you have had the same home loan for several years, there is no harm in carrying out what is termed a ‘mortgage health check’ to see if you are still getting the best deal. Banking products change all the time as the home lending business is highly competitive. What is important when looking at refinancing your mortgage is not to change just for the sake of it. You must have good motivation to do so, for instance, a lower interest rate or loan features that suit your lifestyle better.
There are plenty of options to get fast approval loans and talking to a mortgage broker or your current lender is always a good starting point. Just be aware that there are many traps that unwary borrowers can fall into when refinancing, so it pays to take on board some tips before taking the plunge.
You should not change your loan just because everyone else is doing it. It is a decision that could ultimately save you money (or cost your money), so a lot of thought is required.
Consider these important points:
- Motivation: Why do you want to change lenders or products? Good reasons include better interest rates, making your equity work for you, consolidating your loans or better options, such as a redraw facility.
- Shop around: Using a mortgage broker or a quality online provider is a great way to weigh up your options. It is obligation free and you can compare products in the comfort of your own home. You will find that fast home loans are easy to come by and straightforward to organise.
- Create a list: What is it that you want from your loan? Remember, low interest rates shouldn’t be the only reason to change. There are other features such as repayment plans, access to mortgage offset accounts, fees and charges, and the ability to redraw excess funds that are attractive options you might want to consider.
- Speak to your current lender: If you are considering changing financial institutions, your last port of call should be your current lender. The home financing industry is highly competitive and good lenders will do everything they can to keep your business. Tell them what you want – they’ll soon tell you if they can offer you what you want, without even having to change lenders.
Traps to watch out for:
Unfortunately there are some traps that prove costly for the unwary homeowner. Thorough research and using a mortgage broker should help you avoid these pitfalls.
- Do your homework: Know what you are after in a loan before you go comparing products. Being informed when you talk to a broker or your current lender can streamline the process and help you avoid mistakes.
- The lowest interest rate isn’t always the best: This is because many low rates have higher charges linked to the loan, such as administration fees, late fees and establishment fees. Treat these products with caution because they could cost you more in the long run.
- Fees, fees and more fees: Lenders make a lot of money from charging fees attached to mortgages. There is no reason why you should help prop up their bottom line if you can get a loan elsewhere that doesn’t have a lot of extra charges.
- Read the fine print: It may seem a bit daunting but it is important to thoroughly understand what you are getting yourself in to. So read all documentation carefully and ask questions, regardless of how frivolous they may seem.
- Be honest: There is no point trying to pull the wool over a lender’s eyes because they will be able to see straight through it. Be honest and upfront about your finances and personal situation and you will find you will have a new loan in no time.
Refinancing your home can be a great option to get a better deal on your current loan. Just make sure you do the ground work first so you know what you are getting in detail before signing on the dotted line.