Mortgage Choice - Make The Right Move

Top 10 refinancing mistakes

#1. Change to a different product with the same lender without shopping around

Your lender can only offer you what they have. With so many banks and lenders in the market, it's wise to look around and broaden your choices. This is often referred to as a loan switch or loan renegotiation.
#2. Put it off because you think the process is too stressful and complicated

Refinancing may seem daunting with all the research and paperwork, but a reputable mortgage broker will be able to help reduce the pain and stress. You could achieve significant savings from refinancing, so it's in your best interest to make the move sooner rather than later!
#3. Choose a lender purely based on the interest rate

When it comes to choosing a suitable home loan, the interest rate is only part of the story. Rates can and do change, so make sure you also consider the benefits of additional features and facilities, such as an offset account, credit cards, redraw, line of credit etc. And don't be lured into a honeymoon rate without considering the product's long-term merits once the introductory discount expires.
#4. Not locking in the new fixed rate in writing

If you're refinancing to a fixed rate, by the time it settles the rate may have increased. Some lenders can hold a particular fixed rate for a specific period of time to ensure you don't lose out, so remember to get it in writing.
#5. Not getting the full picture on costs and fees involved in refinancing

Apart from the obvious loan set up fees, you may also be up for break costs / discharge fees on your existing loan. In addition, things like loan establishment fees and ongoing account keeping fees should also be taken into consideration. NSW borrows may also be up for Mortgage Stamp Duty costs.
#6. Refinance to consolidate debts without changing spending habits

Don't be tricked into thinking you're paying off a debt with lower interest rate by rolling short-term debts into your mortgage - the fact is you're paying off the debt over a longer period of time, which means it will most likely cost you a lot more in overall interest if you don't aim to reduce spending or make extra repayments.
#7. Switch to fixed or variable interest rates purely based on the immediate rate changes

Rates change all the time. Rushing to lock in a fixed rate while rates are on the climb or breaking out of a fixed rate as soon as rates start dropping are both impulsive decisions that may not work out to your advantage. Your decision to fix or go with variable rates should be based on your financial situation and the level of certainty you'd be comfortable living with.
#8. Refinance to a loan with higher than 80% Loan to Valuation Ratio (LVR)

If your new loan represents more than 80% of your property value, you may be up for the Lenders Mortgage Insurance which can be costly.
#9. Continue to spend on a debt (e.g. a Line of Credit) that's due to be refinanced

If you're refinancing a Line of Credit, continuing to increase the credit balance may mean that come settlement, you end up falling short of the required loan amount. To avoid this ensure the new loan is for the limit you require, not the current balance.
#10. Not negotiate the interest rate further than what's being offered / published

Even on a packaged loan that already comes with a discount, depending on your loan amount there may be additional room to move on the interest rate - it never hurts to ask!

Are you refinancing to renovate?

Australians love to renovate, but the costs can add up quickly. If you've built up a healthy amount of equity, your mortgage could work out to be a good source of funds. We've put together some tips & checklist to help you make the decision.

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Thinking of refinancing?

There are many good reason to refinance - changes in the market (e.g. interest rate movements) or your personal circumstances (e.g. moving to a bigger home) being just a few motivators to review your home loan arrangement. But be sure to balance the pluses with the pitfalls. Download this handy eBook on "12 tips for refinancing your mortgage" to help you through the journey!

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FAQs

Q1. What is refinancing?

Refinancing is the process of replacing or extending an existing loan with funds from the same lender or a different lender. When you change loan products with the same lender the process if often referred to as a loan switch or loan renegotiation.

Q2. Why should I refinance?

The three main reasons many borrowers choose to refinance are typically to reduce their repayments, save on the interest charged and/or change lenders in search of improved service quality.

You may also consider refinancing when:

Your financial circumstances have changed and you want to move to a loan product and/or lender that is well suited to your current needs
Your fixed rate loan term is nearing the end of the fixed period
You wish to roll several debts into one loan (debt consolidation)
You want to increase the loan amount to buy an investment property, make property improvements, access funds for education and/or to buy personal goods such as a vehicle, boat, etc.

Q3. Are there any costs involved in refinancing?

Most likely yes. On top of the standard set up fees for your new loan, such as Lender's Mortgage Insurance, new loan application fee, loan establishment fee and valuation fee; you may also be up for break / discharge fees from your current loan.

Q4. How do I work out if refinancing is worthwhile for me?

There are many factors that can influence the outcome of your refinanced loan. Interest rate is an obvious factor, but the costs to refinance (e.g. break costs and ongoing fees on the new loan) may outweigh the savings achieved by a nominally lower rate. On the other hand, additional features such as an offset account or a fee-free credit card may help give you extra savings making refinancing a prudent choice. The key is to crunch the numbers, but it's best to consult a home loan expert to help with your calculation.

Q5. Should I refinance to consolidate my debt?

Consolidating your debt can be a good strategy to keep your finances in order, but can turn out to be costly if not managed with care. Rolling short-term debts (such as your credit card or personal loan) into your mortgage may ease the immediate repayment pressure, but bear in mind you're actually turning them into a long-term debt which means you'll likely end up paying more in overall interest. You'll be better placed to reap the full benefits of debt-consolidation when it's combined with a commitment to reduce your spending or make extra repayments.

Q6. Can I refinance to make a major purchase like a car or boat?

Yes, provided you have enough equity in your property. Bear in mind that your mortgage is a long term debt so if not managed properly you could end up paying more in interest than if you were to take out a short term car or personal loan.

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Top 10 refinancing mistakes

#1. Change to a different product with the same lender without shopping around

#2. Put it off because you think the process is too stressful and complicated

#3. Choose a lender purely based on the interest rate

#4. Not locking in the new fixed rate in writing

#5. Not getting the full picture on costs and fees involved in refinancing

#6. Refinance to consolidate debts without changing spending habits

#7. Switch to fixed or variable interest rates purely based on the immediate rate changes

#8. Refinance to a loan with higher than 80% Loan to Valuation Ratio (LVR)

#9. Continue to spend on a debt (e.g. a Line of Credit) that's due to be refinanced

#10. Not negotiate the interest rate further than what's being offered / published

Are you refinancing to renovate?

Thinking of refinancing?

FAQs

Q1. What is refinancing?

Q2. Why should I refinance?

Q3. Are there any costs involved in refinancing?

Q4. How do I work out if refinancing is worthwhile for me?

Q5. Should I refinance to consolidate my debt?

Q6. Can I refinance to make a major purchase like a car or boat?

Make the right move

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Our recent awards

Voted Australia's No.1 Mortgage Broker

Winner of the Retail Aggregator/Originator of the Year award.

The Major Brokerage of the Year - Franchise

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