WITH interest rates sitting at historical lows and competition between Australia’s lenders heating up, many borrowers believe now to be the perfect time to review (and potentially renegotiate or refinance) their mortgage.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
Refinancing can help home owners to consolidate their debt, lower their home loan interest rate and potentially pay off their home loan sooner rather than later.
Of course, refinancing is not a decision that should be made lightly.
While there are plenty of positives associated with refinancing, there are also a few risks that borrowers should consider. For example, when refinancing borrowers may be hit with various fees and charges.
Before refinancing, it is a good idea for borrowers to find out about any exit or deferred establishment fees that might apply if they choose to pay out of their existing loan early.
While exit fees were banned on all new loans taken out after July 1, 2011, they could still apply to loans taken out before this date.
It is also important to note that exit fees don’t include break costs, which can be imposed if a borrower bails out of a fixed rate loan before their loan term expires.
In addition, it is important for borrowers to realise that their new lender may charge a range of upfront fees to refinance, including a loan application fee, valuation fee and a settlement fee.
It is worth noting that not all lenders will charge these fees and some may be negotiable.
Another cost that borrowers may be forced to pay when refinancing is lenders mortgage insurance. Many borrowers may not realise it, but lenders mortgage insurance isn’t transferable from one home loan to another.
As such, if a borrower intends to borrow more than 80per cent of the property’s value when they refinance, they will be required to pay lenders mortgage insurance again, which can be a significant expense.
At the end of the day, there are a few costs associated with refinancing, so it is important for all borrowers to weigh up the financial gains associated with refinancing against the cost of doing so.
Further, when comparing home loans, it is vital that borrowers look beyond the interest rate.
■ 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 180001LOAN.
