Possible Traps of Refinancing
In an article for the website Property Update, Andrew Mirams talks about the traps associated with refinancing. To define, refinancing is when you pay out the running mortgage with a new loan. There can be a variety of benefits of refinancing, including but not limited to, equity build-up and savings on mortgage payment. This, however, does not ward off the pitfalls, which Mirams discusses at length in his piece.
Let us go through the five points Mirams talks about:
1) Shop around
If you fall for your existing lender’s tricks without shopping around the market, you may end up getting the second best deal (or worse). It is always wise to look around; the market, after all, is very competitive, says Mirams.
2) Rates are low, but what about the fees?
Don’t be swayed by low interest rates. It is the status quo in Australia today but sometimes whatever we gain through low rates is more than lost because of the ton of fees (read: break fee, establishment fee and so on) that you have to pay. Moral: Keep digging into relevant information, and gather as much of it as you can.
3) Do not be greedy with the interest rate
Do not wait for a further drop in interest rates. You don’t know where the plateau lies, and when a sudden correction in the market will make you run for cover.
4) Get your credit rating thoroughly evaluated
Do not let your mortgage broker get you anything but the best deal, and this may not be possible unless he puts in the hard yards to evaluate your credit rating and refinancing possibilities.
5) Introductory period deals are too good to be true
Do not be moved by introductory period rates, because they simply do not stay that way for long.
You can read the original article here.
I am no financial adviser but it does not take much to absorb these basic pearls of wisdom. Those looking to undertake renovation or ease out equity for further property purchase will do well to learn as much about refinancing as possible. A bit more knowledge wouldn’t hurt after all.
How did your refinancing move work out?