WHENEVER you make a financial commitment, matching the commitment to your needs should be of paramount concern.
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If ignored, there can be expensive pitfalls if you don't end up with the features you need, or if you find yourself paying for features you don't.
But what happens when circumstances change?
If you want to change your home loan, it is no secret that some are flexible, allowing you to switch or terminate early at little or no cost, whereas others are just the opposite. Understanding the costs in advance can help minimise any surprises later.
Comparing apples with apples
Given the number of lenders and loans on offer, comparing like with like can be a daunting task.
One way of making the job easier is to ask your local mortgage broker, like myself, for help.
I can help you evaluate your current loan and look at whether refinancing could be beneficial to you by identifying loans that meet your needs with the added benefits of a lower interest rate, fewer fees and/or better features.
I would also encourage you to consider other less obvious factors.
For example, the reputation of the lender, the expected quality of customer service and, importantly, any costs associated with refinancing to a new loan.
Don't forget that refinancing costs may apply even if you stick with your current lender and switch loans.
By moving from one loan to another with the same lender you may incur a once-off switching fee.
However, if you change lender, you may be charged a discharge, settlement and handling fee, and the new lender will most likely charge an application fee.
There are also state government mortgage discharge and registration fees payable.
Further, if you have a fixed rate loan, and seek to break it, you will usually be charged a break fee, which your lender can estimate for you. However, the exact amount is often not known until the day of settlement.
Some lenders will also charge a loan exit fee if you refinance within the first four years.
While it is true exit fees on new loan applications were banned in July 2011, these fees can still apply to existing loans, and can be expensive.
Weighing up costs and benefits
Refinancing can, and probably will, involve new costs. However, in some cases, the savings made by replacing your loan with one that better matches your needs can far outweigh these costs.
Consider the possibilities that open up once you start to make savings from your loan repayments.
■ Richard Windeyer is a mortgage broker with Mortgage Choice. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.
Phone Richard Windeyer on 1800 01 LOAN.