5 Common Fails for Borrowers Applying for Refinancing

Refinancing your mortgage can be a smart financial move, potentially saving you thousands of dollars over the life of your loan. However, many borrowers make common mistakes that can hinder their refinancing efforts. Let’s explore five of these common fails, along with examples and sources to illustrate each one.

Fail #1: Neglecting to Shop Around

One of borrowers’ biggest refinancing mistakes is failing to shop for the best deal. Many borrowers go to their current lender without exploring other options, which can result in missing out on lower interest rates and better loan terms.

For example, you have had your mortgage with the same bank for years and automatically apply for refinancing with the same institution without comparing offers from other lenders. Such a move can result in missing out on a lower interest rate offered by a competitor or two.

According to a study by the Australian Competition and Consumer Commission (ACCC), borrowers who fail to shop around may pay significantly more for their mortgage over time. The study found that borrowers who refinanced with a new lender saved an average of $850 per year in interest costs.

Fail #2: Not Checking Credit Score and Financial Health

Another common mistake is failing to check your credit score and overall financial health before applying for refinancing. Lenders use your credit score and financial information to determine your eligibility for a loan and the interest rate you’ll receive. Failing to review these factors beforehand can lead to a higher interest rate or even rejection of your application.

Consider this scenario: You decide to refinance your mortgage to take advantage of lower interest rates but fail to check your credit score, which has dropped due to missed payments on other debts. As a result, the interest rate you receive is higher than what you expected.

According to credit reporting agency Equifax, regularly monitoring your credit score can help you identify any issues affecting your ability to refinance. Addressing these issues can improve your chances of securing a better loan offer.

Fail #3: Overlooking Fees

When refinancing, borrowers often focus solely on the interest rate and overlook the fees associated with the new loan. These fees include application, valuation, legal, and exit fees from your current loan. Failing to account for these costs can significantly impact the overall cost-effectiveness of refinancing.

For example, you refinance your mortgage to save on interest costs with a lender offering a lower interest rate than your current loan. However, you should have accounted for the application and valuation fees, which can be considerable, depending on the lender. In the end, the refinancing process ends up costing you more than you anticipated.

According to the Australian Securities and Investments Commission (ASIC), borrowers should carefully review all fees associated with refinancing to ensure they make a financially sound decision. Comparing the total cost of refinancing with the potential savings can help determine if it’s the right choice.

Fail #4: Not Providing Accurate or Complete Information

When applying for refinancing, you must provide accurate and complete information to your lender. Failing to do so can result in delays or even rejection of your application. Lenders rely on this information to assess your financial situation and determine your eligibility for a loan.

For instance, you fail to include information about your income and debts in your refinancing application. As a result, your application approval is delayed as the lender takes more time to clarify and verify your information. This delay can also cause you to miss out on lower-interest-rate offers.

According to the Australian Financial Complaints Authority (AFCA), providing accurate and complete information is crucial when refinancing. It ensures that your application is processed efficiently and increases the likelihood of approval.

Fail #5: Forgetting to Consider Long-Term Financial Goals

Refinancing can significantly impact your long-term financial goals, so it’s essential to consider these goals when deciding. Failing to do so can result in choosing a loan that doesn’t align with your objectives or financial situation.

Consider this scenario: you get refinancing on your mortgage to lower your monthly repayments. However, you overlooked the fact that by extending your loan term, you increase the total interest you will be paying over the loan duration. This mistake also delays your goal of paying off your mortgage early.

These examples underscore the importance of being fully prepared before applying for refinancing. The Australian Securities and Investments Commission (ASIC) and other financial advice websites offer resources to help borrowers understand these requirements and prepare accordingly.

In addition to the previously mentioned pitfalls, borrowers seeking refinancing may encounter several other challenges:

Interest Rate Misunderstandings

Many borrowers need to comprehend how interest rates work to be able to. For example, variable rates may start lower but increase over time, affecting long-term financial planning. 

Loan Terms Confusion

Borrowers often need to pay more attention to the terms of their new loan. Failing to understand features like redrawing facilities or offset accounts can result in missed opportunities for savings.

Loan Terms Confusion

Refinancing can have tax consequences, especially for investment properties. It’s essential to consult with a tax advisor to understand these implications fully.

According to financial experts, borrowers should consider their long-term financial goals when refinancing, placing equal focus on factors such as the desired loan term, repayment strategy, and overall stability to achieve financial success.

Refinancing can be a beneficial financial move for borrowers, but it’s essential to avoid common fails that can hinder your efforts. By shopping around, checking your credit score, considering fees, providing accurate information, and aligning with your long-term goals, you can make informed decisions that lead to significant savings over time.

At Tiger Finance, we always guide you every step of the way with loan experts who are well-versed in the current situation in the world of financing. You can get a free consultation with our in-house financing expert without obligation to give you the most accurate picture of your loan situation today.

Contact Tiger Finance today so that we can help you begin your journey to securing the hassle-free loan product you need.