5 Mistakes to Avoid When Refinancing a Mortgage
Refinancing can be a great time to reassess your needs and objectives. Before you start your refinancing journey, here are a few things to avoid to make for a smoother process.
1. Don’t focus solely on the interest rate
A more competitive interest rate is very appealing at first glance. But there could be hidden fees and costs alongside this tempting low rate that could add up to a higher cost than you might have expected. The comparison rate can come in handy to compare an indication of the real cost of a loan.
Other factors you should be fully across include:
- Mortgage discharge fees (make sure you don’t confuse these with early exit fees)
- New application fees
- Lender’s Mortgage Insurance (LMI)
2. Don’t underestimate your cancellation costs
If you’re on a fixed rate contract, the break fee can be very expensive and could be in the thousands. So, if you’re thinking of breaking a fixed home loan, first things first, ask your current lender for a break cost quote as well as the early repayment cost. When you compare this with the interest costs of a potential new loan, you could figure out which loan will cost you more.
3. Don’t play the market
Interest rates will change, we all know this. But how soon or regularly is hard to predict. You can try and play the market and wait 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. Don’t feel stuck with your current bank
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 save you thousands.
5. Don’t refinance during a rough patch
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 give yourself and your family 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, whatever your refinancing goals are.