Refinancing 101

is now a good time to refinance my mortgage?

A lot of people can end up switching their loans after 5 years. There are many reasons for this. Partnerships ending, financial needs change, accessing equity or people looking for a better deal. In this blog we’ll look at the refinancing traps to avoid, so you can get yourself the best deal.

Don’t be fooled by the interest rate

The lowest rate may cost you more in the long run or result in less savings. It doesn’t seem logical but some loans with higher interest rates could have better deals. Higher interest rate loans with an offset account could allow for larger repayments and offsetting or lowering the overall interest you pay. Honeymoon rates might be offered at the beginning of a loan but don’t be fooled by this, you need to calculate the savings over the life cycle of the loan. Many introductory rates will be raised to a much higher rate, after that initial period has ended. It may be more beneficial financially to negotiate a lower interest rate without any introductory discount.

Beware of the refinance fees

Think you’re just going to up and leave your current loan, think again! You’ve made an agreement with that lender, so breaking that agreement will nearly always come at a cost. You’re refinancing to try to improve your finances, not get burdened with charges, so you need to be aware of the possible costs. You may have to pay stamp duty, depending on what state you’re in. There may be a discharge fee, application fees and more:

  • Mortgage Insurance

  • Valuation Fee

  • Land Registration Fee

  • Early Repayment Fee

You may also need to be aware that your credit rating has changed, changing your borrowing power. Whilst most of these pitfalls can’t be totally avoided. You’re looking to lighten your financial burden, so the main consideration is ensuring that the costs involved are not higher than the savings, to make the entire process worthwhile.

Loans have so many different structures and so finding the right broker will help you battle the minefield of all the hidden costs and charges. Let us help relieve some of the stress and time involved in your refinancing needs. We could end up saving you money in the long term, which is the whole reason to shop around in the first instance.

Disclaimer

This information is not to be relied upon without speaking to your finance broker, tax agent and financial adviser.

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