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 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.