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5 things to consider before you refinance

clock icon January 9, 2020

Looking to refinance your home loan or other debts? Here are several things you should consider before you make decision to switch rates.

Work out how much you will save

Crunch the numbers and figure out how much you will save, but also ask yourself if you will really be better off. Despite the lower interest rates, make sure you check for any exit fees or charges that apply to switching loans.

When it comes to your new loan, read the terms, conditions for any restrictions that might apply to you.

If refinancing to access your equity, make sure the funds are being put to good use that will actually benefit you in the long run.

Debt consolidation

Before refinancing to consolidate your debt, consider the long term consequences.

While one payment is appealing, there is a risk involved. For example, consolidating a credit card debt with your home loan could potentially mean turning a short-term debt into something you pay off over the span of 30 years, accruing a lot more interest in the long run.

Consider fixing your rate

Switching to a lower, variable home loan might only be a temporary solution if the RBA lifts its rates, leaving back where you started.

Find out if your lender can offer you a fixed rate for a couple of years and the reap benefits with confidence, but always factor in potential rate rises in the future. Remember that fixed rate home loans are less flexible so read the fine print and make sure you can make extra repayments.

Honeymoon rates

Make sure the lower interest rate being offered is for the life of the mortgage and not just a honeymoon rate that reverts to a higher than normal rate after a certain period.

Go over your terms and conditions with a fine-tooth comb before signing anything.

Contact a mortgage broker

If you’re thinking of refinancing to a new lender, you can benefit from a mortgage broker’s expert knowledge of the home loan industry. A broker can not only assess your borrowing capacity and the costs of refinancing, but they can also assist you with the paperwork and negotiate for a competitive rate on your behalf.

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