WITH home loan rates sitting at record lows, many homeowners may (and understandably so) be considering refinancing their home loan into a better, sharper priced mortgage.
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While now is a great time to consider refinancing, especially if you have been in the same mortgage product for more than 12 months, there are some common pitfalls that all homeowners should avoid when refinancing.
Refinancing for no reason
Often, borrowers will make the choice to refinance their home loan without considering the reasons why they want to refinance.
To avoid this pitfall, it is important to have clear reasons in mind as to why you want to refinance.
This will likely make a difference to the type of loan you refinance to.
Not understanding the costs
Refinancing isn't a free process.
In fact, there are some significant fees and charges associate with refinancing, which is why it is important for borrowers to weigh up the costs associated with refinancing against the benefits of doing so before making the leap.
When refinancing, it is important to factor in possible costs such as application fees, lenders' mortgage insurance, and mortgage registration fees, break costs, etc.
Once you researched your loan options, it is not uncommon to find that the right loan for your needs and circumstances is, in fact, your existing loan.
Failing to shop around
A mortgage broker will have access to literally hundreds of home loan products.
So before you refinance into another home loan, it is worth having a chat with me to see whether or not the refinancing decision you are making is the right one for you and your needs.
Dismissing smaller lenders
Often borrowers will ignore smaller, lesser known lenders when refinancing.
This is the wrong thing to do as many smaller lenders offer incredibly competitive products.
A mortgage broker can show you which lender and product are most suitable to you and your future needs.
Focusing on interest rates
When refinancing, a lot of borrowers will look for a lender who offers the lowest rate.
Of course, when refinancing rate isn't everything.
A home loan's interest rate is only one factor to consider when refinancing to a 'cheaper' home loan option.
It is just as important to weigh up other loan factors such as the loan fees, features and flexibility.
Not understanding what's required
Often, a lot of borrowers will enter the refinancing process without realising exactly what is required of them.
Every time you apply for a home loan you will likely need to submit a range of paperwork to show evidence of your current income, expenses, assets and liabilities.
To ensure a smooth loan application process, it is a good idea have all of the necessary paperwork on hand.
■ 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.