Are you among the many Australians who set and forget their mortgages, thinking it’s one less worry?
The truth is complacency can lead to tens of thousands of dollars in extra interest. The mortgage market is dynamic, and what was once the best deal may no longer hold true. Refinancing, if done right, can be highly lucrative. It allows you to pay off your loan faster or leverage increased property value for your next purchase. However, incorrect refinancing decisions can cost you even more.
In this guide, I’ll highlight the seven common mistakes property investors make during refinancing and provide actionable tips to avoid them.
Mistake 1: Switching to a Longer Loan Term
Switching to a longer loan term, even with a lower interest rate, can cost you more in the long run. For instance, if you reduce your mortgage term from 30 to 26 years and then switch to a new 30-year loan, you might end up paying more.
Solution: Ensure your new loan term aligns with your existing one. Savvy investors can maintain the same monthly repayments to shorten the loan term.
Mistake 2: Refinancing in a Falling Market
Refinancing when property values drop can lead to unexpected expenses. If your equity falls below 20%, you may be forced to pay lender’s mortgage insurance (LMI).
Solution: Avoid refinancing with less than 20% equity to prevent additional costs. If LMI is necessary, reconsider if refinancing is worthwhile.
Mistake 3: Falling for Honeymoon Specials
New customers are often enticed by low short-term rates that later revert to higher ‘real’ rates. Calculating based on advertised rates can lead to surprises.
Solution: Base refinancing calculations on comparison rates for a more accurate assessment.
Mistake 4: Ignoring Add-On Fees and Charges
While advertised and real rates may align, overlooking switching costs like discharge fees and application fees can result in unexpected expenses.
Solution: If switching to a loan with upfront fees, negotiate for fee waivers. Many lenders may be willing to accommodate this request.
Mistake 5: Changing Loans but Not Lenders
Refinancing with the same lender may limit your options. Considering the multitude of investment lenders and loans available, it is crucial for securing the best value.
Solution: Take time to explore various lenders and loan options to ensure optimal value.
Mistake 6: Offering Blind Loyalty to the Big Four
Loyalty to major banks may not yield the best rates. Many challenger lenders offer competitive rates without compromising quality.
Solution: Give challenger lenders an opportunity to compete for your business.
Mistake 7: Trying to Do It All on Your Own
Failure to conduct due diligence is a common thread among refinancing mistakes. Leverage external resources and experts to avoid financial setbacks.
Solution: Utilize comparison websites, mortgage calculators, and consult a mortgage broker before finalizing your next mortgage.
Take Informed Action
Investors often overlook their mortgages, potentially incurring significant extra interest. The ever-changing mortgage market demands attention. Refinancing every five years can be a powerful strategy, but avoiding these mistakes is crucial. Learn from these insights and act with precision to secure your financial future. For personalized advice and guidance on your refinancing journey, reach out to Leonie directly at leonie@wealthology.com.au.
Master the art of refinancing and pave the way for property investment success.
