Common home loan refinancing mistakes to avoid
While refinancing your home loan could help you save money over the life of your loan or allow you to take advantage of shiny new features, borrowers can often overlook the potential costs. So, to help you navigate through the refinancing process, the Credit Savvy team have put together a list of key refinancing mistakes to avoid:
Not being fully prepared
Before you refinance your home loan, it’s important to first assess your current loan thoroughly and ask yourself these 4 questions to see if refinancing is the right move for you.
As refinancing is essentially the same as getting a new mortgage, it’s a good idea to start the process when you’re in a strong financial place to increase your chances of getting approved. Aside from meeting the eligibility criteria, be diligent in making your repayments on time and in full and find ways to reduce any debts you have as soon as you can. Read more on how to prepare yourself before you refinance.
Not knowing your credit reputation
With lenders now having access to more detailed data in your credit history, it’s important to check your credit score to find out where you stand, as a potential lender may not approve your application to refinance if you have a low credit score. Fix any errors on your credit report and find ways to improve your financial position to help increase the chances of getting approved.
Failing to grasp the true cost of refinancing
Switching loans or lenders without being certain the total cost is very risky, as exit fees for your current loan and establishment fees for your new home loan plus the potential loan term, may outweigh the savings of a lower interest rate. Assess your current and potential loan thoroughly, so you factor in every cost that might occur in your refinancing process.
Not shopping around
You may have been with the same bank for years; however, traditional banks aren’t the only home loan lenders in the market. With the cash rate at a record low, there are plenty of alternative lenders that are offering competitive deals on home loans. Head over to our home loan comparison service and find out if you can score a better deal.
Getting distracted by rates
Focusing only on the interest rate won’t provide you with the true cost of your loan, that’s why it’s important to pay attention to the comparison rate to give you a better reflection of your home loan’s cost and ongoing fees. If a lender has a higher advertised comparison rate than you’re currently paying on your existing loan, you might want to search for a better deal.
Not locking down a fixed rate
If you’ve decided to go with a fixed rate home loan, you’ve might’ve been attracted by a low advertised rate. Keep in mind that some fixed rates that a lender is offering can change between the time you first apply and the time your loan settles, which usually is a duration of 90 days.
Though some lenders offer a “rate lock” feature for their fixed rate home loans, it’s worth considering whether you should lock in your rate and compare which lenders do offer rate lock guarantees.
Want to learn more about refinancing? Head over to the Learning Hub and get started today.
If you’re not sure where to start or you have questions regarding refinancing, you can consider talking to an expert. Request a free appointment with an eChoice mortgage expert today.