Are you considering refinancing your home loan? But what exactly does it mean to refinance your home loan? To put it simply, a home loan refinance is when you trade in your current interest rate for a new on. This is primarily achieved by obtaining a new mortgage to replace the original. That is to say, home loan refinancing allows you to obtain a better interest term and rate. Carrying out sufficient research can be the difference between saving or losing lots of money. Before you rush and sign on the dotted line here are some common home loan refinance mistakes to avoid.
Common home loan refinance mistakes
The first mistake most people make is to refinance with no valid reason. As such, it is important to avoid the mistake of refinancing without a goal in mind. It is paramount to carry out thorough research before you consider refinancing your home loan. Start by asking yourself ‘Why do I want to refinance’? Be certain to consider all the variables that could have changed since you obtained your original mortgage. These variables include property value, income, and job. Take your time, shop around and critically assess the numbers with your broker to evaluate the benefits and setbacks of refinancing.
Not considering additional costs and fees
Most people make the mistake of rushing into a refinance assuming that it will save them money. However, this is not always the case, and unfortunately, a great number of people find this out the hard way. When it comes to refinancing there are a lot of costs and fees that you need to be aware of. Remember that you are going through the home loan process again and therefore the same fees may apply. In addition, keep in mind that you may be charged for breaking a fixed-rate period. Take all the extra costs and fees into account and work out if refinancing is practical and worth it. Moreover, in the event that your property has dropped, then you may have to pay the lender’s mortgage insurance to our new lender. Some of the fees you may encounter include break fees, establishment fees, mortgage discharge fees, administration fees, lender’s mortgage insurance.
Not looking at other considerations
Many borrowers primarily focus on the interest rate when thinking about refinancing. However, this is not the only reason to consider refinancing. This is because there are so many other considerations to take into account. Some of the mortgage products with low-interest rates may actually be missing desirable features. As such, it is important to carefully scrutinize the fine print and fully understand what each lender is offering. In addition, it is also important to look at the larger picture and ensure that a refinance meets your broader goals and long-term needs. I recommend engaging a seasoned broker to assist you to shop around and compare different options.
Not taking your credit score into account
Your credit score fluctuates depending on your financial position and commitments. With this in mind, it might be difficult for you to refinance if your credit score is when then you got your original mortgage. Moreover, your borrowing power can be significantly reduced if there have been major changes to your spending and debts.
The value of your property has changed
A decrease in the overall value of your property can bring you serious issues when you want to refinance. In most instances, a decrease in the value of your property typically results in a decline in your refinance. This is usually the case in situations where buyers end up with a mortgage greater than the value of the property.
It is important that you critically evaluate the reason you may be considering a refinance. In addition, you need to carry out sufficient research to work out if a refinance is the right thing for you. Lastly, it is vital that you consult a mortgage broker to help you through the entire process.