Avoid these common mistakes and refinancing your home loan should be a simple, trouble-free experience.
Successfully navigating the refinancing process can enable you to take advantage of better rates and features, as well as provide finance for a renovation, construction or property purchase.
Mistake # 1: A low credit rating
Lenders want to avoid taking on risk and won’t be impressed with missed/late repayments or going over the limit on any lines of credit. Obtain a copy of your credit report to see where you can start making improvements, such as paying down debt and paying bills on time.
Mistake # 2: Making too many credit enquiries
Every time you submit a credit application to a lender, it’s recorded on your credit report. When the lender sees a number of applications they wonder why another lender hasn’t given approval – this may be all the reason they need to view your enquiry unfavourably.
It’s a good reason to go through a mortgage broker because it’s our business to know how the criteria vary between lenders. Your Yellow Brick Road representative will help you determine which lenders you will have the most success applying to.
Mistake # 3: Thinking short term
When shopping for a new loan, you’re probably looking for one that will suit your needs now, but what about a few years down the track? If you move home or take a career break to raise a family, the loan you choose needs to accommodate these life changes.
Mistake # 4: Not locking in the rate
If you fail to lock-in the new favourable rate of interest on your new loan, it may increase by the time your loan gets processed. Lock-in the rate with written confirmation while the loan is processed.
Mistake # 5: Choosing the same loan term
Let’s say that you have a 30-year mortgage and nine years into it you decide to refinance. Refinancing using the same 30-year loan term won’t do you any favours over the long term. Although your monthly repayments will significantly reduce, you will pay more in interest because the loan balance is spread over an extended period.
A better idea is to refinance to a term that more closely resembles the time left on your home loan – for example, 20 years. It means you’ll make significant savings in compound interest without having to up your monthly repayments.
Of course, extending your loan term makes financial sense if you’re refinancing because you’re consolidating debt or in financial difficulty.
Mistake # 6: Failure to calculate all costs
Sometimes the savings you could make by switching loans is outweighed by the expense involved. Make sure you know what up-front fees you will be charged and conduct a thorough cost-benefit analysis before you go ahead. Let your Yellow Brick Road mortgage broker know if you wish us to do this for you.
Mistake # 7: Lack of attention to paperwork
Not supplying all the supporting documents when putting in your application can send it back down the bottom of the pile and the waiting game will start over again.
It’s equally important when your loan is approved to review the documents properly before signing for a clear idea of the terms and conditions. As mortgage brokers, we are experts at guiding borrowers through the paper chase and explaining what’s in the fine print. Give us a call anytime for assistance navigating the refinancing process.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.