So, it’s time to refinance and consider your options. Just find a mortgage broker and new great deal? Make a few calls and appointments to see who has the cheapest rates?
Well, no, there is of course more you need to consider. Some people get advice from mortgage brokers and lenders who ‘omit’ to tell them of key facts or potential risks and opportunities about their loans. Or they refinance when that wasn’t actually the best option. We hear many stories, after the fact.
To help you assess your options and your mortgage specialist, Mortgage Corp’s loan strategist Neil Carstairs listed below the 8 top questions you should ask your mortgage broker if you’re thinking of refinancing.
First, What NOT To Ask
“What’s the lowest rate I can get?” We have had a lot of enquiries this year from investors as well as home owners wanting to refinance their mortgages. When asked why they wanted to refinance most of them mentioned they just wanted to get a better interest rate.
While interest rates are one indicator of a better loan, they can sometimes be deceiving. Most people don’t realise that loans with the lowest interest rate can sometimes cost you more. A loan with the lowest rate will not always have the right conditions and in the long run, this can make the loan more expensive than you may realise. And a ‘cheap loan’ usually comes with fewer features including restricted access to your equity, which can potentially hinder your investment returns and cost you more in lost opportunity than you stand to save. So steer your focus away from just the interest rate digits.
So now, here are the top 8 questions you should be asking your mortgage broker or the bank manager when you are considering refinancing.
Top 8 Questions To Ask Your Mortgage Broker
- The number one question you should ask a mortgage brokerwhen you are thinking of refinancing to buy your home or an investment property is “how can you help me”?
- What’s your role as my broker? What type of service will you provide and what will you do for you me?
- Ask whether or not it is worthwhile for you to refinance now. (A good broker will tell you if you should even refinance at all)
- What are the benefits of refinancing now apart from simply lowering my interest rate and monthly repayments?
- Can you explain all the costs associated with refinancing and possible loan features?
- What are the benefits and restrictions of any loans recommended including penalties for early exit?
- Is the loan product an introductory offer? If so, will or when will this interest rate discount expire?
- How will refinancing suit and improvemysituation and my specific goals?
In fact, a good mortgage broker should be asking YOU a lot questions to better understand your objectives and your reasons for refinancing.
A mortgage broker should not only be clicking a few forms or offering you another loan with a better interest rate. An experienced mortgage broker should be:
- Taking the time to understand your objectives, your current situation, your lifestyle as well as your future dreams and goals;
- Assessing if and how refinancing can specifically benefit you, in the short term as well as in the long run;
- Calculating whether Lenders’ Mortgage Insurance (LMI) would mean that you are not actually saving money from refinancing?
- Keeping your best interests at heart and delivering a customised finance solution based on their experience, as well as an intimate understanding of policies and products; and
- Ultimately, be helping you MAXIMISE your long-term financial success, whether that is through refinancing or through some other proven lending strategy.
If your mortgage broker isn’t taking the time to consider the above, then be wary of refinancing through them – as it’s more likely than not that they won’t be advising you of the best option for your circumstances.
Also as mentioned, you need to look further than the interest rate figure. Whilst it might be tempting to go for another loan with a lower rate, watch out for fees such as:
- Set up costs or annual fees;
- Penalties when you exit your current loan or early exit conditions on the new loan; and
- Interest savings you are missing out on because you don’t have features such as an offset account.
As I’ll will explain below, you might end up being out of pocket if you and your mortgage broker haven’t properly considered the other fees and conditions that may arise when switching loans.
If you’re thinking of refinancing to a lower rate, did you know that you might actually end up paying more because of LMI?
If you refinance your loan and it’s greater than 80% of your home’s value, you might be charged LMI – that means some borrowers will end up paying LMI twice! Mortgage insurance applies even if you refinance from one bank to another bank.
Therefore, you might save $30 a month on interest but if it’s going to cost you $5,000 to $6,000 for mortgage insurance, this means that over a five year period for the cost of refinancing is now an extra $1,000 per year that you have to pay back on top of your loan, PLUS interest of the WHOLE TERM OF YOUR LOAN ( most car loans are 5 years).
On the other hand, if you’re refinancing to consolidate your debt, you might still be better off, even if you do pay LMI. Say for example you have:
- a home loan;
- two car loans; and
- a credit card.
If a lender offers to refinance your loans by lowering your car loan and credit card interest rates to a home loan interest rate, it might work out that the amount you save on interest does in fact outweigh the amount of LMI you would need to pay.
But if you’re only refinancing a $20k car loan and a $10k credit card, you would really need to weigh up whether your interest savings are worthwhile enough for you to wear the extra cost of $6,000 for LMI. You might decide that you’re better off instead paying extra repayments and paying down your mortgage.
A good mortgage broker will do the calculations for you to see if you actually come out on top when refinancing. They will also make sure that you get a revised valuation done on your home (and, if applicable, any other properties that you own) to try to get you the most competitive rate possible without being out of pocket for LMI. They will also prompt you to look at all options before considering refinancing.
What it really comes down to is that it shouldn’t be you asking the questions when refinancing. If a broker is experienced and knows what he/she is doing, THEY should be able to ask questions directed at finding out your objectives and goals.
The real value of getting your refinancing done through a mortgage broker is the ability to speak with an experienced professional who can recommend the right loan product and strategy that is customised to your situation.
Therefore, it’s important you work with a mortgage broker who is interested in finding out the purpose behind your refinancing.
Your purpose for refinancing can make all the difference in determining the best structure for your loan. For example even if you’re just refinancing some credit card debt, a good mortgage broker will make sure it’s done right so that it’s not putting you in a bad financial position where you’re just using your home’s equity to pay down bad debt.
So stop making the mistake of asking for the lowest interest rate and start asking “how can you help me?” And make sure your mortgage broker is actually delivering a customised a finance solution that maximises your long-term financial success.