Did you know that 33% of Australian homeowners wanted to refinance their loan in 2023?
As interest rates continue to fluctuate, more homeowners are considering refinancing their home loans.
Whether you’re looking to lower your monthly payments or tap into your home’s equity, working with a refinancing mortgage broker in Melbourne expert can help you guide the process successfully.
Let’s explore the seven critical mistakes you need to avoid when refinancing your home loan to ensure you make the most of this financial decision.
1. Focusing Only On Interest Rates
While it is important to secure a lower interest rate, that approach alone is insufficient. It is foolish to ignore fees and features while counting solely on the advertised interest rate on loans.
Most loans may have market rates advertised low but carry high comparison rates, representing the actual cost incurred through fees and charges. Compare both advertised and comparison rates.
2. Ignoring The Total Cost Of Refinancing
It is quite obvious that refinancing does cost money. Most borrowers think only about the reduced interest, ignoring the complete expenditure picture.
Such expenses include:
- Application fees
- Valuation fees
- Break costs for fixed-rate loans
- Settlement fees
- Discharge fees from your current lender.
With the above information, a refinancing mortgage broker professional will help you figure out if the long-term savings would offset these upfront costs.
3. Not Checking Your Credit Score First
Your credit score will determine what rates you are offered. Before applying for refinancing, check your credit report and take steps to improve your score if necessary. Most lenders will want you to have at least a 670 score to offer you their best rates.
4. Extending The Loan Term Unnecessarily
Although re-extending your loan to a 30-year term may sound inviting since it reduces your monthly payments, it can be very expensive in total interest over the life of the loan. Instead, align the term of the new loan with the remaining term of your current mortgage so you don’t pay extra interest.
5. Overlooking Fine Print And Loan Features
Offset accounts and redraw facilities are among the features that some refinancing options offer, which may score you a few bucks. Not understanding these features or the favourable access provisions of the terms means giving up those benefits.
A Refinancing Mortgage Broker will help you choose the loan that best suits your needs.
6. Miscalculating Your Home’s Value
Your home’s current market value directly affects your refinancing options.
Common valuation mistakes include:
- Relying on online estimates only
- Not considering recent local market changes
- Overlooking necessary repairs
- Failing to document recent improvements
7. Taking Too Much Cash Out
When doing a cash-out refinance, borrowing too much equity can:
- Increase your loan-to-value ratio
- Result in higher interest rates
- Reduce your financial flexibility
- Leads to longer loan terms
Professional guidance from a refinancing mortgage broker expert can help you determine the optimal amount to borrow while maintaining a healthy equity position.
8. Refinancing Too Frequently
Every time you refinance, you incur certain expenses. If you’re going to refinance each time for a minor point spread, soon all the fees will add up to wipe out any net savings. Thus, consider the long-term savings before refinancing again.
9. Being Drawn To Short-Term Offers
Low rates or cashback may tempt you, but will not entice you in the long-run. While such options may promote savings in the short term, they may lead to higher expenses when the promotional term ends. Rather think about long-term affordability with money.
10. Assuming Approval Is Guaranteed
Just because you were formerly okayed to borrow money to purchase a home doesn’t imply that you will automatically qualify for refinancing. Lenders will again evaluate your complete financial scenario and may possibly be stricter in standards. Keep a good credit score and earn a steady income to increase your chances.
Key Considerations When Refinancing
| Aspect | What to Watch For | How to Avoid Mistakes |
|---|---|---|
| Interest Rates | Compare advertised vs. comparison rates | Focus on true costs, not just the low advertised rates. |
| Refinancing Costs | Break fees, exit fees, and setup charges | Calculate total costs and compare with potential savings |
| Loan Term | Extending unnecessarily | Match the new loan term with your existing term. |
| Frequent Refinancing | Accumulating fees | Refinance only when significant savings outweigh costs. |
| Loan Features | Ignoring offset accounts/redraw options | Choose a loan that suits your financial goals. |
| Introductory Offers | Short-term perks vs. long-term costs | Check post-honeymoon rates and overall affordability. |
| Loan Approval | Assuming automatic approval | Maintain strong financial health and documentation. |
Ready To Refinance Your Home Loan?
Refinancing your home loan is a significant financial decision, and avoiding common mistakes is key to ensuring it works in your favour. At Credit Hub Australia, our refinancing specialists are here to help you understand the process, whether it’s assessing exit fees, comparing loan features, or understanding additional costs.
Take the first step toward better financial flexibility today—talk to our team and let us guide you toward a smarter, more rewarding refinancing experience.
Disclaimer:
The information provided by Credit Hub and its affiliates is for general informational purposes only. While we strive for accuracy, readers should verify any details before making financial decisions. Credit Hub accepts no liability for errors, omissions, or actions taken based on this content.