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Refinancing your home loan can save you tens of thousands of dollars for your loan term. After weighing up the pros and cons involved and decided refinancing your home loan is the right choice for you, you’re well on your way to getting a better deal. But before you make a decision on your new home loan, you’ll want to make sure you can avoid falling into any of the common refinancing traps. 

Taking the time to do a little extra research and staying savvy can help you a long way in getting the best deal possible on your refinancing. Refinancing can allow you to maximise your savings, unlock extra loan features and breathe a little easier. Just make sure you keep an eye out for these classic red flags: 

Mistake #1: Not locking in a fixed rate loan 

If you’ve chosen to go with a fixed rate home loan product, it’s very likely you’ve been drawn in by a lower advertised rate. A fixed rate often brings you peace of mind that your rate won’t be subject to unexpected changes for the duration of the loan term. However, what many borrowers don’t know is that there’s nothing that stops this rate from moving after you might initially apply. If this happens, that means the interest rate you end up finalising at settlement can be quite different from the advertised rate that convinced you to apply in the first place – an unwelcome surprise.  

There’s good new though – many home loan lenders can offer their customers a ‘rate lock’ agreement for their fixed-rate home loans. This means you’re able to lock in the rate that was advertised at the time you applied, commonly for up to 90 days. Some lenders might choose to charge a fee for this, but many other lenders offer it as a free feature. If you’re choosing a fixed rate home loan for your refinancing process, it’s definitely worth deciding early whether you want to lock in your rate, and to compare home loan lenders offering rate lock guarantees. 

Mistake #2: Skipping over the comparison rate 

A comparison rate isn’t a perfect guide. But it gives you an at-a-glance idea of the price you’ll expect to actually pay for a home loan. For any home loan offer, the comparison rate is an important detail to give you a better idea of a home loan’s genuine value. When taking addition fees and costs into account, a comparison rate can be a much more accurate measure of a home loan’s cost (as opposed to only the rate that’s advertised). 

If you’re interest in refinancing your home loan, it’s a good idea to pay attention to the comparison rates available on offer. While you’re at it, you should also have a look at the comparison rate for your current loan. If a potential lender has a larger comparison rate than what you’re currently paying, you’re better off looking for a better deal elsewhere. 

Mistake #3: Adding more time to the length your home loan 

When refinancing your home loan, it’s likely the new lender might give you the option to take out a new 30-year home loan term. Any borrower should be very wary of accepting this. If you’ve already been paying your home loan off for a number of years, switching to a new, longer 30-year term means you’re actually extending the amount of time it’ll take you to be debt-free, and you’ll end up paying a larger amount in interest overall. 

In some cases however, it might be necessary or unavoidable to add more years onto your loan term. For instance, if you’re experiencing financial hardship, adding more time to your home loan term could reduce your monthly repayments and allow you to get back on track or cover your biggest financial priorities.  

Mistake #4: Being drawn in by ‘honeymoon’ interest rates 

In a competitive home loan market, Australian lenders might often offer all-time-low rates as a quick incentive to entice new customers. These kinds of offers are usually called ‘introductory variable rates’, or ‘honeymoon’ rates. For a short period, you’ll be guaranteed a significant discount. But after that period ends and the ‘honeymoon’ is over, that guarantee no longer applies. In some cases, there may even be additional fees or costs that weren’t discussed at the time of application.  

This doesn’t necessarily mean that introductory variable rate loans are a bad deal! There are often a great range of offers available, and what type or style of loan you need will depend on your own circumstances.  

That being said, if you’re refinancing to a ‘honeymoon rate’ home loan product, you should pay close attention to the rate you’ll switch to after the introductory period is over. A good benchmark will involve paying close attention to the home loan lender’s current standard variable rate. If the lender you’re looking at has a higher standard variable rate than the lender you’re currently with, it’s likely the deal you think you could be getting won’t add up to any significant savings in the long-run. 



This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.