Don’t – refinance for the wrong reasons
It can be really tempting to accept a loan deal that seems too good to be true, especially if it’s the first deal you find. Unfortunately, some lenders’ deals aren’t as competitive as they might first appear.
Honeymoon rates are some of the lowest rates you’ll come across during your refinancing research. But there’s a catch. This low rate only applies for a limited time, meaning you might be paying a similar (or higher) rate than the one on your current loan once that period is over. It’s a smart idea to learn how much you’ll actually be paying when the honeymoon period ends.
The competing lender might also give you an exclusive offer to hook you in. For example, they might offer a cashback up to a certain amount if you refinance with them. But you might end up with a higher rate than your previous lender.
Do – understand your goals and current financial situation
Take a moment to look at your current home loan and interest rate. For instance, is the interest you’re paying negatively affecting your financial goals? By understanding your current loan, you can decide if it’s actually working for you.
If you think your loan isn’t helping you achieve your goals, it might be time to refinance. Knowing your ‘why’ can help you find the ideal new loan, and lender, that will support your specific needs.
And if you’re still unsure if refinancing is for you, here’s a list of common reasons why people refinance a home loan:
- To get a better interest rate that helps you save money.
- To access new features on your loan, such as flexible payments and free redraw.
- To access the equity in your home to renovate, travel or invest.
- To consolidate your debts into one monthly repayment rather than multiple ones to manage your money better.
Don’t – submit loan applications to lots of lenders
Submitting multiple loan applications to different lenders might seem like a good idea to cover all your bases. You might think it can boost your chances at securing a better deal. But applying to refinance multiple times can have a negative effect on your credit score.
Why? Well, each time you apply, your lender will conduct an enquiry on your credit report. Having too many enquiries in a short period can be a red flag to lenders, so it’s important that you do your lender research first before refinancing.
Do – research your refinance options
Like with a lot of things in life, each type of home loan has its pros and cons. Whether it’s the loan features, interest rate or repayment options, researching the different loan types can help you understand what’s available. You can do your research on your own. Alternatively, you can talk to your lender or broker about your refinancing options to help you save time and money down the track.
Here are three things that you can investigate during your refinancing research:
- Interest rates – How will your new rate compare to your current one?
- Features – What features does your new loan have that your current one doesn’t?
- Costs – What are the costs to refinance and are there any ongoing fees? Do these outweigh the benefits of refinancing?
With so many home loan comparison websites out there, it’s easier than ever to research and compare. And if you want to see how much you can change by switching loans, you can use our home loan refinance calculator.
Don’t – forget about the costs involved
There are some costs involved with refinancing that can put a lot of homeowners off from switching loans. Take the time to work out what you might have to pay as part of this process. You can chat to your lender or broker about the specific costs that are involved so you feel fully prepared.
As a starting point, some of the costs you might encounter include:
- Discharge costs
- Break fees
- Loan application fee
- Title search fee
- Property valuation
You’ll also need to work out if you have enough equity to refinance so you can avoid Lenders Mortgage Insurance (LMI), as changing lenders without enough equity can become costly.
Do – consider the features of your new home loan
Every lender is different – and so are the features they offer on their home loans. Compare the different loan options that are available and see which features can benefit you the most.
At Great Southern Bank, we have many clever home loan features that our customers find useful, which include:
- Unlimited extra repayments on our variable home loans free of charge, and up to $30,000 on fixed loans6
- Free redraw on all our loans4
- Flexible repayment options, such as paying every week, fortnight or month
- No annual or monthly fees
- The ability to switch loan and repayment types
- The Boost, which allows you to pay off your loan every time you spend5
Don’t – go for the longest loan term
When you refinance, you might be able to change your loan term. If that’s the case, then you can carry over the remaining term on your current loan to the new one. You might also avoid paying any additional interest too, which can be a help you pay less over the life of your new loan.