The recent cut to the official cash rate will prompt many home loan holders to consider refinancing. But before they make a move, it is vital for them to weigh up the pros and cons, otherwise they may find that they come out worse off.
In order to avoid refinancing traps make sure you do the following:
1. Consider your personal and financial circumstances – It’s highly likely that your circumstances have changed since you first took out a mortgage. You may have more children and more debts, or you may have a better paying job and more assets. So while it’s wise to reassess your current home loan, it’s also vital that you reassess your situation, as some changes in circumstances can mean that the best mortgage deal for you is the one you already have.
2. Review fees and charges – When you refinance you are effectively taking out a new home loan. Therefore, you’ll be asked to pay an application fee and other charges, such as a title search and home valuation.
In addition, a fixed rate home loan can incur a break fee if you elect to exit the home loan before its term expires. Break costs are typically charged if a home loan was taken out when the official cash rate was higher than the current market rate. Therefore, a break fee can cost you thousands depending on the amount you borrowed from a lender.
3. Compare similar home loan products – There is no point comparing a basic fixed-rate home loan to a fully featured variable-rate home loan. Instead, you need to compare similar products, so you can estimate whether or not you’ll be financially better off.
4. Always approach your existing lender – Most lenders don’t want to lose existing customers that have a good history with them. So before you jump ship and find a new lender, approach your existing lender, and ask if they can give you a better deal.
5. Look at your options – Conduct independent mortgage research and enlist the help of a broker. This will allow you to make sure you’re getting the best deal. But, just remember that research takes time.
Brokers on the other-hand can save you time and money, but they are also limited to the lenders they have on their lending panel. So they cannot compare all home loan products on the market.
6. Always consider offers in detail – Promotional or introductory offers are typically used to lure in new customers. Then once the honeymoon period is over the rate will revert to the lender’s current variable rate. This may be higher than others in the market.
Are you looking to save more on your home loan? If so, then contact eChoice and find the right home loan for YOU today.
Written by eChoice