Even though you might be coming to the end of your mortgage journey, it makes sense to refinance and save as much as you can for retirement or investing. With proper guidance from a financial professional, refinancing can be a rewarding process. Bill Tsouvalas, Managing Director at Savvy, BRW’s fastest growing finance company in 2015, talks about the five most common mistakes you should avoid when preparing to refinance your home loan.
1. Assuming you won’t take a hit on fees and charges
One of the cardinal sins in finance is making decisions based on assumptions. When you are looking to refinance your home loan, you need to weigh up if your new lender or bank will:
a) offset potential exit fees from your current lender with savings, or;
b) charge you even more in fees, costing you more, not less.
It’s true that the Government banned exit fees on loans taken out after 2011. However, loans taken prior to that date may have fees retroactively applied. So make sure you request a detailed quote so you can crunch the numbers.
2. Refinancing during a fixed rate period
If you opted for a fixed interest rate loan, switching to another lender or loan product may attract stiff penalty fees. This allows lenders to recoup potential losses – and twist your arm into staying. Make sure you know all your obligations before leaving a loan of this type.
3. Refinancing when your property has lost value
Some of you may have seen your house price plummet during corrections, or even during the Global Financial Crisis. This harms your chances for a better refinancing deal, as your equity value also drops.
In extreme cases, when your loan-to-value ratio exceeds 80 per cent, you may need to take out Lender Mortgage Insurance and be subject to higher interest rates. Request a proper valuation and figure out if your equity is healthy enough for a refinance package.
4. Looking at base rates, not comparison rates
Low interest rates look great on paper, but conceal the many fees and charges you may have to pay. Comparison rates are government-regulated charts of similar loan products that include most fees and charges. Just because a loan looks good doesn’t mean it’s the whole story. You need to be on the lookout for honeymoon periods and other enticements.
5. Refinancing after your financial situation has changed
If your financial situation has changed significantly, such as running into bad credit or transitioning out of full-time work to part-time work, this affects the health of your financial standing. Lenders may want to charge more due to the perceived higher risk. You should always check your credit history before applying for any major financial product, and refinancing is no different.
To find out more about home loan refinancing visit www.savvy.com.au