At a time when interest rates remain near historic lows and the market has diverse and dynamic mortgage options – there could be substantial benefits to you taking another look at your mortgage to explore refinancing options. You could very well reduce your interest rate, lower your monthly repayments or achieve other goals that have been on your list! Re-financing should always be about creating benefits and not blunders – you’ll be surprised how often people make these top 5 mistakes. Avoid! Avoid!
The Top 5 Common Mistakes to Avoid.
Mistake #1 Going it Alone
There is a reason why this common mistake takes position number 1, essentially all 5 common mistakes can be avoided, simply by making the decision to not navigate your refinancing journey alone, the solution – use a Finance Broker.
The benefits of using a broker are numerous. You can learn more about these benefits by reading our previous article ‘What can a Finance Broker really do for you’ or by exploring ‘How a Broker Can Help You’ on the campaign website recently set up by the MFAA (Mortgage Finance Brokers Association of Australia) aimed to educate, inform and ultimately help you #findafairerdeal.
In an increasingly regulated and complex market, people are more than ever turning to brokers to assist them to obtain finance. Currently, brokers arrange almost 58% of all home loans in Western Australia. A good finance broker will not only assist you to re-finance your home but educate and guide you through the process, resulting in a tonne of time-saving and stress reduction. Brokers provide you with a wider choice of loan products across multiple lenders to present you with the options that are going to be the right solution for you. By going direct to a lender, you will only be sold that lender’s products.
Mistake #2 Not being clear on your goals
When you know what you ultimately want to achieve by refinancing, and being crystal clear on your goals, you will be best positioned to generate the desired result.
So simple yet such a common mistake! So often people refinance without considering the full picture. Your interest rate may be lower, but does your new loan have all the features you need? Do you need an offset account or redraw capability? Having you considered fixing your interest rate? Are your circumstances likely to change in the next few years that may affect your decision? There are many reasons to refinance, but the right solution will for you will depend on your circumstances. By ensuring you are clear on your goals, you set yourself up for a winning solution.
Mistake #3 Not knowing the fees involved
Although refinancing can save you substantial money and therefore knock years off your mortgage, there can be associated costs. It is important to KNOW what they are and weigh up the costs versus benefits ratio. If your answer remains ‘Yes’, then it’s time to refinance.
The types of fees you may incur when refinancing include discharge fees to terminate your current mortgage, stamp duty on the new mortgage, loan application fees, and associated legal fees with your new loan. Another consideration, does the loan have an annual service fee? Will you be penalised for early repayments? On the flip side, in the current market there are plenty of lenders offering incentive rebates – more benefits!
If the savings outweigh the costs, then refinancing may well be the right solution for you. Knowledge applied creates powerful results!
Mistake #4 Exploring Debt Consolidation
Are you considering debt consolidation? Do you have high interest credit cards, a car loan or a personal loan with a high interest rate? By consolidating your short-term loans into your home loan, you can benefit by paying a much lower interest rate on this debt. To ensure you benefit from the lower interest rate, you should continue making the same monthly repayments you were previously making on the short-term debt, thereby paying your debt down much sooner.
However, if you are struggling to meet your monthly repayments for your various short-term debts, by consolidating these debts into your long-term home loan, you can reduce your overall monthly commitments and ease the pressure on your cashflow. It’s important to remember though, if you do this, you will be paying your debt off over a much longer period, which will mean that you will pay more interest over the life of your loan.
Whether debt consolidation is the right solution for you will depend on your circumstances and your financial goals. A good finance broker is an absolute asset in this area, they regularly construct solutions for all types of scenarios. The right advice on debt consolidation could result in saving you time and thousands of dollars.
Mistake #5 Choosing a loan without an early repayment option
Getting on top of your finances and gearing towards paying off your mortgage sooner? Choosing a loan WITH an early repayment option may seem like an obvious step however it is commonly missed. Perhaps your financial situation changes and you are able to put more into your mortgage each month, after all, the sooner you pay it off, the less interest you will pay. This is an important consideration when looking at your refinancing options to ensure when you are making additional payments, you avoid being hit with fees which eat into your freedom plan!
In a nutshell, you can use these insights to turn common mistakes into wonderful opportunities to better your financial position. To start the process, one of our expert brokers can help you explore your options and support you to find the right refinancing option for you. You can book a free consult by calling (08) 9367 4222, email us ([email protected]) or fill in the contact form on this page.