Do you think that refinancing is too hard? Have you checked your mortgage recently? Whether you’re looking to lower your monthly repayments, restructure your loan or access more flexible options, refinancing may be a viable option.
With the general perception being that it’s complicated, expensive, and best left in the too-hard basket, there are many myths surrounding refinancing and here are three common myths about refinancing that you need to be aware of.
Even though there are myths about refinancing, the truth is that refinancing is quite straightforward and more affordable than you think.
Common Myth #1: There are too many hidden charges associated with refinancing. The government abolished exit fees on July 1, 2011. Lenders are now banned from charging borrowers exit fees like deferred establishment fees on new loans, although fixed loans and loans prepared before July 1, 2011, still incur early repayment costs.
There are still fees to take into consideration. Smaller charges like document preparation fees, settlement attendance fees and title fees from both your outgoing bank and new bank are likely to be charged to borrowers. There are some banks that have set fees for those on top of other charges, while some include them in their settlement or establishment fees. Others charge these fees on a case-by-case basis.
When borrowers are looking to increase their loan, change to a fixed rate amount, or need to borrow more than 80% of the property value, extra charges come into play. Fees and charges may vary significantly depending on banks and lenders. There are also unavoidable refinancing charges that rate actually applied by the government rather than the lender.
Common Myth #2: It’s too expensive to refinance. With exit fees being banned on July 1, 2011, refinancing your home loan may not cost as much as you think. Most lenders will charge fees to discharge the loan and possible a legal fee to cover the cost of releasing the title and closing down the loan account.
Lenders mortgage insurance is the main cost that discourages homeowners from refinancing. Initially, you would have had mortgage insurance added to your loan if you borrowed more than 80% of the value of the property. If you subsequently look to refinance and the loan is still above 80% of the value of the property, then the mortgage insurance may be levied again.
It is important to understand what similar properties have been selling for in your area to get an idea of what your home might be worth. There may be some fees included switching lenders. You may find that you will receive greater savings over the life of the loan, outweighing the initial fees, if you find a lender who offers lower interest rates, little or no upfront fees ongoing fees. However, whichever the case may be, it’s best to research beforehand to ensure that you’re getting the best deal.
Common Myth #3: You cannot refinance if you have a fixed rate loan. You may incur break costs but it’s possible to refinance a fixed rate home loan. Take into consideration how much your fixed rate is and how much variable rates have changed plus the term remaining on your fixed rate. Calculating break costs may be complicated but you may find that the overall savings or refinancing may be more than the costs involved. Be sure to speak with your current lender about what break costs are involved to ensure that those costs don’t outweigh the benefits of refinancing.
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