The information contained in this article is of a general nature only. It doesn’t take account of any person’s objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and seek independent legal, financial, and taxation advice.
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Top 5 mistakes to avoid when refinancing
Have you been struggling to sleep lately? According to our recent research*, 59% of Australians are lying awake at night thinking about their personal finances. We all know the importance of a decent night’s shut-eye, so if you fall into this category, keep reading.
When it comes to enjoying your life (and the extra hours of sleep), refinancing is a great way to get everything back into balance. It’s like resetting the clock. You’ve re-assessed your financial situation, set your goals and ambitions and now it’s time to start seeing the pay-off. BUT, before you dive in head first you should be aware of some key roadblocks to avoid.
1. Focusing solely on the interest rate
Sure, a more competitive interest rate is very appealing at first glance. But there could be hidden fees and costs alongside this tempting low number that make it higher than you might expect. That’s why all lenders in Australia are required, by law, to show comparison rates alongside their interest rates.
Other things you should be fully across include:
- Mortgage discharge fees (different to exit fee!)
- New application fees
- Stamp duty
- Lender’s Mortgage Insurance (LMI**)
2. Underestimating your cancellation costs
If you’re on a fixed rate contract, the break fee can be very expensive… like thousands of dollars expensive. So if you’re thinking of breaking a fixed home loan, first things first, ask your current lender for a break loan quote including the early repayment cost. When you compare this with the interest costs of a potential new loan, it could help you make your decision.
3. Playing the market
Interest rates will change, we know this. But how soon or regularly is hard to predict. You can try and play the market, waiting for interest rates to go up or down, but if there are savings in your immediate future, why wait? A great way to forecast your potential savings is by doing a loan comparison.
4. Sticking with your current bank / NOT shopping around
Brand loyalty can be a drawback when it comes to refinancing. You may have been with the same bank for years, and know your account details by heart… but this familiarity can blind you to the competitive opportunities a new bank may hold. Like any massive investment, it’s vital you shop around for the greatest deal. In this case, making a change may literally be as good as a holiday. (Because you could save enough money to go on a holiday… get it?!)
5. Refinancing when the going gets tough
It’s best to refinance when you’re in a strong financial place. The better your repayment history, and the less debt you have when refinancing, the more chance you have of getting a competitive rate. Instead of refinancing to overcome a financial hurdle (and potentially causing yourself more stress), refinance to empower yourself and your family with the opportunity to spend more on the things you love.
Now that you’ve armed yourself with some helpful pointers on what not to do, you can forge ahead with more confidence (and sleep!), whatever your refinancing goals are. New bathroom, new car or hey, maybe even a top of the line new mattress? You’ve done your research: you’ve got this.
* UBank Know Your Numbers Index data conducted and compiled by Galaxy Research of 1,015 Australians in February 2018.
** At UBank, we require a minimum 15-20% deposit depending on your loan type, but we don't require LMI to be added to any of our current home loans.
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UHomeLoan info: Credit is provided by AFSH Nominees Pty Ltd Australian Credit Licence 391192. UBank is the mortgage manager for UHomeLoan products. Govt charges may apply. The comparison rate is based on a secured loan of $150,000 over the term of 25 years. ^WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.