Crunching the Numbers Before Refinancing
Refinancing your home loan can be one of the easiest ways in which to reduce your monthly outgoings. Getting even a slightly lower rate of interest on your loan can translate into substantial financial breathing space. As with any other financial transaction you should however make sure that you go into it with your eyes wide open. One very important thing to take into account is the fees and charges that you will likely be charged.
Some companies advertise refinancing rates that may seem very attractive on the surface but that makes a lot of money for them in below the radar costs. Of course we all know who will be out of pocket from having to pay these costs! It may also be the case that you current lender has systems in place to lock you into your existing loan, making it very difficult for you to refinance without taking a substantial financial hit.
Here are some costs that you should look out for:
- Exit Fees: Many loan agreements have clauses which penalizes the borrower for early payment. In the worst cases this is defined as a percentage of the loan amount which can translate into a substantial expense.
- Establishment Fees: Some loan providers charge hefty fees for setting up new loans. In some cases these fees can, in the short term, seriously diminish the savings gained by refinancing.
- Other Costs: In some cases there may be legal and statutory costs involved in refinancing e.g. stamp duty, property valuation, mortgage insurance (for loans covering a substantial percentage of a property’s value) etc. Make sure that you find out what these costs are and how much it will amount to.
The above is not intended to put you off from refinancing. Far from it, there are some great deals out there and you could save a lot of money by switching lenders. The important thing, however, is to do your homework and to make sure that you are not so mesmerized by a seemingly good interest rate that you are blind to hidden costs that could cause you to pass up on a better overall deal.
