Refinancing your home loan can be a great way to save money and get a better deal. With interest rates on the move, many Australians have been seeking out new offers in order to get the most out of their mortgage.
In January 2021, the value of external refinancing for total housing fell 2.1% but remained close to record highs at $18.6 billion, indicating that there is still plenty of potential when it comes to home loans.
That said, it’s important not to rush into anything without doing your research first – here are six common mistakes to avoid when shopping around for a new home loan:
Mistake #1: Only looking at the interest rate
It’s a no-brainer that you’ll want to get the most competitive interest rate available when refinancing your home loan. However, there are other factors you should take into consideration in order to get the best deal for your situation.
For example, an offset account can be linked to your home loan, with any funds held in this account offsetting the money owing on your home loan – which means less interest paid in the long run. Redraw facilities also mean you can make extra repayments with the option of withdrawing those funds later if needed.
In addition to this, it’s worth looking at what else is important to you in a lender. Customer service? Repayment flexibility? Make sure to consider all aspects before making a decision and don’t forget that interest rates aren’t everything.
Mistake #2: Not considering the comparison rate
When comparing home loans, make sure you’re taking into account the comparison rate rather than just the advertised interest rate. The comparison rate factors in not only the interest percentage, but also any fees and charges associated with a loan – which can have a significant influence on overall costs.
Taking this into account is essential when shopping around for a new home loan, as it provides a more accurate idea of what you’ll be paying and allows you to compare different options based on their true cost.
Mistake #3: Forgetting about the fees
When switching lenders, it’s important to remember that there may be a range of costs involved. This could include mortgage discharge fees, mortgage registration fees, new application fees and Lenders’ Mortgage Insurance (if you owe more than 80% of the property’s value). You may also incur break fees if you are currently on a fixed home loan.
To make sure you budget for any additional costs associated with changing lenders, be sure to ask your lender for full clarity on all expenses upfront.
Mistake #4: Being bedazzled by cashback offers
It can be tempting to take advantage of enticing cashback offers that come with many home loan deals. While receiving a bonus is always a plus, it’s important to assess if the home loan is suitable for your needs and goals before making any decisions.
Think about the features you need in a loan, whether it works well with your finances, and whether it could still be beneficial in the future – not just how great the cashback offer is right now.
Mistake #5: Not investigating debt consolidation
If you have a number of existing debts, it’s worth researching whether debt consolidation might be the right move for your finances. This involves combining all your debts into one home loan repayment – meaning you only have to manage one payment rather than several.
It’s also likely that the interest rate on your home loan will be lower than what you’re paying for other types of credit such as personal loans or credit cards. So, if debt consolidation is appropriate for your situation, it could help make managing your debt easier and more cost-effective.
Mistake #6: Trying to go it alone
Making the decision to refinance a home loan is a big one, and there’s no point in trying to navigate it on your own. That’s why professional mortgage advice is essential when considering refinancing – so you can make sure you understand exactly what you’re getting into and choose the right loan for your needs.
Experts in the field will be up-to-date with all borrowing requirements, changes in the market and details specific to your situation that can affect which home loan product is best for you. To get started on refining your finances in 2023, reach out today!