If you feel like your lender is no longer looking after you and you’re paying far more than you must on your mortgage, then it’s time to look at your options. Today’s mortgage market is extremely competitive. So, while big banks offer you security, they often lack in service. Plus, they cannot give you the most competitive rate. To save, sometimes it pays to look at smaller lenders who could shave a percent or even two off your interest rate. Let’s look at five top tips when refinancing your home loan, so you get a competitive deal.
Refinancing to a lower rate could shave thousands off the cost of your home loan over its term. But, it’s important to do your math before refinancing as there are hidden fees and additional costs that can add up. So, before you jump in the refinancing your home loan pool, check out the depth of the water just to be certain that it’s right for you.
Here’s the deal:
- Review ongoing fees. Often lenders will charge a monthly or annual fee on your mortgage. These fees range from $10 per month up to $395 per year.
- Check application charges. While a lender can offer you a low rate, some also charge a high application fee. These costs can be as high as $800 per loan.
- Look at exit fees. Some home loans that are older – pre-July 2011 – may incur an exit fee. To be sure that there is no cost associated with your existing loan check the small print of your home loan document.
- Consider break costs. If you currently have a fixed home loan, then you need to check to make sure that you won’t incur a break fee. Typically, you’ll incur a break fee if you borrowed at a higher rate than the current market. For instance, let’s say you fixed your home loan at 5.20%. Now rates are 3.77%. So, due to your lender paying more to borrow the funds they’ve lent you, they’ll charge you a break fee because they will lose money when re-lending your funds. You can use a break cost calculator to estimate this fee.
It’s also a good idea to check the terms linked to home loan features. Some lenders charge more for these features, reducing the benefits. By crunching the numbers before switching, you’ll work out if your loan is not only affordable but also it creates a better financial situation for you long-term.
There are hundreds of lenders out there all vying for your business. Knowing which one is right for you comes down to more than an interest rate. You also need to consider:
- Is the lender online only? Some lenders are purely online based. They don’t have a shop front, so you won’t be able to meet in-person. If this bothers you, then look at alternatives.
- Does the lender offer other facilities? Larger lenders such as banks can provide borrowers with a full package – transaction accounts, credit cards and home loans – while small lenders have restrictions. If you’re in search of a complete financial solution, then make sure you ask what a lender can offer you before making a move.
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When you have a credit card, car loan, home loan and shopping accounts to pay off it can become overwhelming. But here’s the kicker: those who are struggling to make repayments can look at combining their debt – putting the lot on one loan – and then paying off their other loans. A mortgage broker can help you calculate how much you could save by consolidating debts.
Some of the benefits of debt consolidation are:
- Smaller monthly repayments. Paying for individual loans that have much higher rates than a home loan can add up quickly. Therefore, rolling all your debts into one and paying a lower home loan rate could save you more. However, due to the length of your home loan – typically 30-years – it’s also important that you pay more off over a shorter length of time. This strategy will see you potentially save more and shave years of your home loan term.
- Look at splitting balances. Some lenders will offer you a split balance choice when you combine debt, allowing you to keep your property and other debt balances separate. This feature gives you the same interest rate overall debt but enables you to reduce your other debt faster than your home loan.
- Less financial stress. Debt consolidation reduces monthly financial stress and frees-up capital so that you have more money for other costs. As such, you don’t feel stretched and unable to afford expenses as they arise.
With interest rates at the lowest ever and there talk of the Reserve Bank lifting rates sometime during the year, it makes sense to consider fixing. Fixing your rate not only gives you peace-of-mind when there’s talk of rate rises, but it also stops you worrying about how you’ll make ends meet.
But before you fix your home loan look at:
- Your circumstances. If you’re looking at moving or want flexibility, then fixing your home loan may not be the right option for you. Typically, if you fix your interest rate at a higher than market rate, you’ll incur a fee when breaking the mortgage.
- Calculate costs. Always look at fees before making a switch. Review your existing home loan and compare this to others before you make any move.
Honeymoon or introductory rates are a way of a lender attracting you to their product, but they have a limited duration. So, it’s important that you know all the facts. Here’s the deal:
- Check the rate term and revert rate. If you find a lender is offering you a great rate, always ask if this is for a fixed term. Then ask what the rate reverts to after the honeymoon period ends.
- Review lender terms and conditions. Always read the full loan contract and check all details to ensure they are correct. Then, crunch the numbers to make sure the loan is affordable after any rate rises.