6 Ways You Can Ruin Your Refinance

October 3, 2017


Lower mortgage repayments, a lower interest rate, more flexibility to meet your financial goals – you stand to gain a lot by refinancing. However, there are ways to mess up the process, sometimes even before you begin.

If you are thinking of refinancing your mortgage, here are the 6 things you should never do.

Apply to Multiple Banks

This is a mistake that can quickly ruin your ability to qualify for a competitive home loan. You should only apply to a bank that you believe will approve your new loan. Every application you submit will go on your credit file. Multiple applications are a red flag for lenders.

Submit an Application Right after Changing Jobs

Some people believe you should refinance when you get a new job with a better salary, assuming the higher income will qualify you for a better loan. This isn’t necessarily true. Lenders want to see income stability just as much as they want to see a high enough income. New employment is a change, and as such is another red flag as far as banks are concerned. You’re better off waiting until you’ve worked at your new job for at least six months.

Apply Soon After Becoming Self-Employed

Have you recently left your former employer to start your own business? This is an exciting life change – and one that will unnerve lenders. As a result, banks will request plenty of financial documents to feel confident you can service your loan.

When you are self-employed, you will need two years’ worth of tax returns and other financial statements to demonstrate your income as a business owner. If you don’t have the right income verification, you’ll have to apply for a low doc loan. Low doc loans tend to have higher interest rates and fees – and refinancing to a more expensive loan isn’t likely to be in your financial best interests.

Apply for Other Financing

One of the most important factors banks will look at when evaluating your home loan application is serviceability. Your loan assessor wants to know you can afford to repay your mortgage within your current lifestyle. If you have recently taken out a personal or car loan, this lowers your serviceability. These loans tend to make a big impact on your perceived ability to repay because they are usually paid back within three to five years and as such come with relatively high repayments.

Laser Focusing on a Lower Rate

When you refinance, you have the chance to get a feature-filled loan with a competitive rate. A lot of borrowers just shop around for lower rates but the flexibility of your loan can be just as important, if not more so. Especially as your financial situation changes over the course of your mortgage, you want the freedom to make early repayments, lower your interest with an offset account or access money with free redraw. If you neglect these features, you could find yourself regretting your choice in a couple of years.

Not Doing the Numbers

Jumping into a new loan can be tempting when rates fall. However, this is only looking at part of the picture. If you want to know if refinancing is really worth it, you need to compare the costs of refinancing to the money you could save by refinancing. You can use an online mortgage calculator and talk to a mortgage specialist to help determine how much you could save each year when you refinance and how long it will take you to make back the costs of switching to a new loan.

By avoiding these mistakes and in some cases waiting until a later date to switch to a new loan, you can make sure when you do refinance, it is a positive experience.

Written by Refinancing.com.au

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