15 Feb Refinancing Traps to Avoid
Whether you want lower repayments or tap into the equity sitting in your home, refinancing can offer some fantastic benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.
Don’t be fooled by the interest rate
Finding a lower interest rate doesn’t necessarily mean you’ve gotten a better deal. In fact, a product with more features may cost you more in fees or interest, but could also save you more long-term. Included features such as an offset account will be valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments.
Honeymoon rates are what they say on the box
Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems like an enticing offer, but it is only temporary. Once the introductory period has ended, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.
Be aware of the fees
One of the main purposes of refinancing is to lighten the financial load, however, that doesn’t mean that it’s not going to cost you. There can be fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.
You don’t necessarily need to change lenders
A recent survey by comparison website Finder.com.au suggests consumers are motivated to switch lenders for lower interest rates. However, as competition is fierce, your broker may review the numbers and then start by negotiating a better deal with your current lender; threatening to take a better deal elsewhere may save you even more than leaving would.
While there are traps to avoid, a little expertise can take the pain out of refinancing to save you thousands, fund that renovation, or simply find a loan that is a better fit for your circumstances.
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