Debbie Shankar - 12 Aug, 2016

What are the Do’s and Don’ts of Refinancing?

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Australian mortgage costs and home prices have risen considerably over the last 10-years. So with home loan interest rates being the lowest that they have been in years, now is the perfect time to get on top of those loan payments. However, if you are hoping to save by refinancing your home loan, then there are right and there are wrong ways to go about it.

It Does Not Pay to be Loyal to a Lender

Just because you have been banking with the same financial institution since you were three-years-old does not mean that you have to take out a home loan with them or that you have to stay with them if you already have a mortgage. If your current lender is not competitive or they have poor customer service, then it might be time to start shopping around for a better home loan.

Leave your emotions at the door and any personal feeling aside, and start viewing your mortgage as a business. Your lender wants you to do business with them; you are an asset to them and worth money. So if they want to keep your business, then they are going to have to offer you better value.

Start the Search Before your Term Expires

If you are on a fixed rate home loan term, and this is about to expire, then it’s time to start looking at your options. Your current lender might be able to give you an even better deal at the end of the term, or your loan may revert to a much higher rate. To avoid being stung, start researching the market now. Knowing what home loans are on offer will enable you to secure a home loan deal that you are happy with.

Stick it Out

If you have had your current home loan for less than 2-years, then wait to refinance. For you to make refinancing viable, then it’s important for you to have a new loan for a minimum of 3 to 5-years. Switching lenders frequently will erode any savings you could have made as you will be paying far too many fees. Plus, it may have a negative impact on your credit rating, as lenders typically like to see stability. Frequent switching may make you appear as unreliable and a higher risk than you actually are.

Less is More

When it comes to refinancing, some borrowers think that it’s better to apply for a number of home loans with many lenders, as this will give them a better chance of securing a home loan. However, the opposite usually occurs. When you apply for a home loan, the lender you have selected will check your credit rating. Credit checks register in your credit history. Therefore, the more credit checks you have, which do not result in you securing a loan, can indicate to a lender that you are a higher risk. Some lenders may even think your loan application is unsuccessful.

Avoid being Fooled by  Low Advertised Interest Rates

When you see that a lender has a lower advertised interest rate than you currently have, it is tempting to switch lenders. However, the truth of the matter is this advertised interest rate does not include the home loan’s fee and charges, which can make it far more expensive than your current home loan rate. For example, a bank may be offering a 3.45% home loan. While that rate sounds incredible, this rate is their advertised rate. When you look into the loan in greater detail, you find out that their comparison rate, which includes all fees and charges over the term of the loan, is 5.22%. This rate is .22% higher than your current rate of interest. So if you had of switching to this home loan, then you would have been paying far more than you currently are.

Are you looking to refinance? Then contact eChoice, you could end up saving thousands on your home loan.

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