Refinancing Traps to Avoid
Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.
Don’t be fooled by the interest rate
Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. .
Honeymoon rates are just that
Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount. And if your property value declines or your financial situation changes you may not be in a position to refinance when the Honeymoon rate is over.
It sounds great to have an extra $3,000 in your bank account right? It may not be all that it seems. Make sure you work out exactly how much it is going to cost you to move your loan. How much will your current bank charge you to discharge and how much does it cost to set up the new loan? You will find a much lower amount will end up in your bank account.
Be aware of the fees
One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.
Restarting your loan term
When you set up your loan it was probably established over a 25 or 30 year period however you may already be a few years in. If you are paying the minimum payments you need to be aware of the new loan term when you refinance. If you choose to start a new loan term again then you will end up paying more interest over the life of the loan.
While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. Get in touch and we will guide you through the process.