When shouldn’t you refinance your home loan?
Refinancing can be a great option if you’re looking to get a better deal on your home loan but there are some scenarios where refinancing might not be the right move for you. Let’s take a look below:
Your circumstances have changed
Lenders look for stability when they assess your application. Someone that constantly changes their job every year is riskier to lend to than someone who has held the same job for the last 10 years. So, if you’ve recently changed jobs, taken a pay cut, or have gone back to school full-time, you might want to put off refinancing.
The fees are too high
Refinancing isn’t always fee-free. If there are fees to get out of your current loan and/or fees to set up your new loan, the cost may outweigh the benefits. Here are a few fees you should consider in the process:
- Break-costs for fixed rate loans
- Early exit fees (for loans signed before 1 July 2011)
- Discharge fees
- Upfront fees for the new loan (application, valuation, legal, settlement fees etc.)
- Any ongoing fees for the new loan compared to your existing loan
- Lenders Mortgage Insurance (LMI) (if your new loan has a higher LVR)
You’re not going to get a better deal
It’s easy to get distracted by something new and shiny, so it’s important to consider the whole picture before you jump to refinance. A new loan with a super low rate could get you lured into a loan that doesn’t actually suit your circumstances. Here are some questions you should ask yourself:
- Is the rate variable or fixed?
- Is it an introductory rate that reverts to a very high rate?
- Does it have all the features that I want?
- Is it a package deal with other discounts?
- Is it a basic loan with no frills?
- Is there an offset account?
- Can I make unlimited extra repayments?
- Do I need branch access?
- Can I get something similar from my current lender?
You have a poor credit score
A poor credit score indicates to potential lenders that you are risky to lend to. If you have a black mark or late payments on your credit file, this could prevent you from getting approved for a new loan. Remember, now that Comprehensive Credit Reporting is live, it’s more important than ever to make all your repayments on time. If you’re behind on your mortgage repayments on your existing loan, get them paid and up to date before you think about refinancing.
Check and monitor your credit score and credit file information, so you can make the necessary improvements before you refinance.
Want to learn more about refinancing? Head over to the Learning Hub and get started today.
Have more questions? You might like to speak to an expert. Request a free appointment with an eChoice mortgage expert today!