Five tips for refinancing: John McGrath
Refinancing is pretty much on the cards for everyone in today’s marketplace, estate agent John McGrath suggests.
"At some point, another lender will make it worthwhile to switch, or you might want to refinance with the same lender to release equity for your next move," he said.
"Refinancing is an opportunity. Yes, it can be a pain – in fact a major inconvenience, especially if you have to move all your accounts across to your new lender as part of a ‘package deal’, but you could save thousands of dollars every year so it really is worth the trouble, especially today with variable and fixed mortgage rates so low.
"The most important piece of advice I can give you on refinancing is to get advice before you do it.
"It really pays to sit down with a reputable mortgage broker who will assess your current position; discuss what you want to do next; and then determine which lenders are most appropriate for you," he wrote on his switzer.com.au blog.
Alan Hemmings, general manager of McGrath’s mortgage broking division, Oxygen Home Loans, gave John five tips on how to do refinancing well.
Do not accept the advertised rate – Most lenders advertise standard variable rates, others advertise with the ‘standard’ discounts available under their package. The truth is that lenders are discounting well beyond the rates they advertise, particularly for variable loans.
Be aware of other costs – Exit fees on loans were banned a few years ago but you’ll still need to pay a discharge fee. Then there’s the establishment fee on the new loan, plus some other fees. It could easily add up to around $1,000. Ask yourself, will the interest rate saving cover the refinancing costs? Also be conscious of ongoing fees, such as annual package fees.
Buyer Beware – Don’t fall for ‘honeymoon’ rate offers. Lenders use them to attract new business but what does the rate convert to after the introductory (honeymoon) period? You might find it goes to the standard variable rate or a ‘standard package’ discount of say, 0.3% for the rest of the loan. A negotiated discount of 0.9% for the life of the loan right from the start would work out cheaper.
To fix or not to fix? – Understanding your likely future circumstances should guide you here. Most lenders now allow some additional repayments on fixed rate loans without penalty, however should you wish to ‘break’ the loan then you’ll be up for a fee. Remember, fixed rate loans provide certainty of your repayment amounts but not much flexibility.
Do you want fries with that? – What other banking facilities do you require? Do you need an offset account, credit card, access to free ATMs? Your overall banking needs might also dictate the type of loan you need. If you’re looking at a transaction account and credit card, a ‘package’ loan might suit you better than a basic loan.
For information on property loans, rates and more, visit Mozo.com.au or click here for the free Property Observer eBook, Get loan-savvy – tips for a first time, investment or refinancing loan, which helps you decide on a home loan that meets your requirements.
