Avoid These Common Refinancing Mistakes to Save on Your Home Loan

July 6, 2017

Avoid These Common Refinancing Mistakes to Save on Your Home Loan

Refinancing your home loan can be a very lucrative move. You may be able to find a cheaper loan, saving thousands over the term of your mortgage. You also may be able to create opportunities for yourself to achieve your financial objectives, such as investing, renovating your property, or consolidating debt.

Your refinancing experience can, however, come with some challenges or prove to be more expensive than you had planned if you don’t know how to navigate the process like a pro. Before getting started, make sure you avoid these common refinancing mistakes.

Assume a Lower Rate Means a Cheaper Loan

Depending on how much of a rate decrease as well as the remaining term of your mortgage, refinancing to a lower rate may not yield the cost savings you want. Make sure you do the math. Evaluate the fees and charges you’ll have to pay to refinance and determine how much you’ll save in your monthly repayments.

Refinance to a Longer Term if You Don’t Need To

That lower mortgage repayment can be tempting. However, if you are adding years to the term of your home loan when you refinance, you may end up paying more for your loan overall. The longer you are repaying, the more in interest you’ll pay in the long run.

Refinance with Your Current Lender Without Doing Your Research

You may be able to save on fees, such as exit fees, by refinancing with your current lender, but you won’t know if you could get a better deal on your home loan by switching to a different lender unless you shop around . Look for refinancing rebates or special deals like discounted interest rates and waived fees. Depending on the market, lenders may be willing to compete for your business.

Leaving Your Current Lender Without Finding Out What They’ll Offer

On the other hand, your current lender may make refinancing a very attractive option. Find out what they may be willing to offer you – after you’ve researched other lenders. They may be able to give you an excellent deal to keep your business.

Having No Idea How Your Credit Stands

Don’t assume because you’ve been paying down your current mortgage on time that your credit rating and financial position are strong enough to qualify for a better loan. Applying for a new home loan, only to be denied, can be a costly refinancing mistake. Make sure you have a lender or broker evaluate your credit rating and revise your financial position so you know exactly what loan you’re likely to qualify for.

Waiting for Better Rates

Not a good idea. If you can refinance now to a lower interest rate, do it. And, make sure you get your new rate locked in so it doesn’t go up while your loan is processed. You can’t predict the future of the market. If rates go up, even a small amount, you could lose thousands on a refinancing deal.

Refinancing to Spend More

A golden rule of refinancing – never refinance your home loan just so you can spend more money. Your equity shouldn’t be used to go further into debt, but rather to help you reach goals. Consolidating high-interest credit card debt can be a wise move, as long as you change the spending habits that got you into debt in the first place.

Ending up Paying Lender’s Mortgage Insurance

Unless refinancing will offer you significant benefits (which is possible), don’t refinance to a loan where you will end up paying lender’s mortgage insurance. You’re better off refinancing at less than 80 percent of the loan to value ratio.

Refinancing is a powerful tool to help you get more out of your home loan. But, it is meant to improve your financial situation, not complicate it. Avoid these refinancing mistakes to make sure you benefit.

Written by Refinancing.com.au

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