Written by 
- The Savvy Promise
At Savvy, our mission is to empower you to make informed financial choices. While we maintain stringent editorial standards, this article may include mentions of products offered by our partners. Here’s how we generate income.
Switching home loans isn’t something you should dread. As a matter of fact, if you rushed into opting for a bad loan, that doesn’t mean you are stuck with it forever! Each borrower should analyse his/her loan conditions on a regular basis. So, if you’re thinking about refinancing, here come the main mistakes you should refrain from doing.
Refinancing when your property’s value has diminished
Many Australian owners have witnessed the decrease of their property value. While this is something inevitable, it can raise some concerns for borrowers who plan to refinance. As your property’s value falls, that will imminently reduce the equity value. That may lead to a high-interest rate and, possibly, the increase of Lenders Mortgage Insurance. Typically, that happens mostly to self-employed borrowers or those who own rural properties.
Refinancing on a fixed rate time span
Fixed interest loans are known to have exit fees designed especially for borrowers who might want to switch loans. Most of them are quite punitive, ensuring lenders a good profit margin, as well as forcible means of customer retention. Truth be told, if you choose to refinance on a fixed rate time span, you could do worse off concerning the fees you end up paying eventually. Thus, analyse the loan’s obligations most attentively.
Not factoring in the attributes of a loan
Typically, most borrowers who plan on refinancing tend to overlook the costs that come with this decision. Mostly, they focus only on the difference in interest rates. That is wrong. Believe it or not, the fees that come with exiting your current loan may outstrip the amount of money you might save with a lower interest rate. It’s true that exit rates have been eliminated from July 2011, but there are numerous other fees you shouldn’t overlook.
Not doing careful research
Before you make the move and refinance, you should do your research most attentively. Many people tend to underrate research. But, this step can do you better than wrong, I promise you that. Take the time and research the options the loan market offers you at the moment and compare your current loan with other alternatives.
Factor in aspects such as payment flexibility, interest rate change, the term of the loan, security against rate growth, the necessity of lenders insurance mortgage, entry and exit fees, or, hopefully, lack of them, so on and so forth. These are just a couple of guidelines for comparing loans. If other loans appear up in front, then, you have valid motives to go ahead and refinance.
Not being prepared
If you’re determined to obtain a refinancing, you should prepare yourself. Don’t assume that everything will be taken care of overnight. On the contrary, refinancing is similar to a whole new home loan process. For this reason, your credit record should be as good as possible. Make sure to begin paying off personal debts as soon as possible and diminish credit card limits to manageable levels. At the same time, in the position of a borrower, you should prove employment consistency.
Did you find this page helpful?
This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
