In today’s show Andrew Mirams, from Intuitive Finance, answers some questions about re-financing pitfalls.
Kevin: It might be fair to say that many borrowers will probably prefer to stay with their deal because they don’t quite know what’s involved in refinancing. There are some pitfalls that you need to be aware of, but if we can bring them to your attention, you might be able to go into a refinancing deal with a lot more confidence.
That’s what we intend to do over the next few minutes as I talk to Andrew Mirams from Intuitive Finance. Andrew, thank you for your time. I wonder if you can just help us with just outlining a few of those pitfalls when it comes to refinancing.
Andrew: Good day, Kevin. Look, there are a few pitfalls, and it always comes back to the purpose, I guess, of why clients are actually looking to refinance – whether they’re looking to get a better deal or more money or do a renovation or buy that investment property, etc., what that actually is.
I think one of the very first pitfalls that we see all the time is clients just going back into their current lender, asking them what they think they want, the lender says yes, and they get it and they think, “Oh good. I’ve managed that myself,” without actually doing the shopping around and the legwork to just check they’ve got the best deal, they’re getting the maximum amount of equity out if that’s what they want to do. If they’re being told why one lender that they can access $400,000 to buy an investment property, there might be another one that can give them $500,000 that gives them a better opportunity to buy a better property.
The first thing is just accepting what your current lender offers you is the best deal. Do some legwork and absolutely, you should consult a mortgage broker in my opinion, and allow us to do the legwork for you. That’s the first point. Don’t accept what they just give you as a given.
Kevin: Okay. Check it out for yourself. And the next one?
Andrew: I think the other thing in the current market, especially with low interest rates, people tend to shop on rate and they don’t look at all the other options. A lot of the really cheap rates often have some fees – higher application fees, higher ongoing fees, and there might be other legal fees that they have to pay. Sometimes when you analyze it over a longer term, it’s not actually cheaper when you take the whole package into consideration.
Don’t just shop on rate; look at the whole package.
Kevin: Okay. The next one?
Andrew: The next one is really interesting because I had a client only a week or so ago saying, “Look, I’m just going to wait to the next interest rate decrease, and then I’m actually going to look.” I said to him, “Why are you procrastinating? What are you expecting that you’ll get by waiting that you won’t get today?”
He said to me, “Well, they’ll be cheaper.” I said, “Yes, but they’re cheap today, and assuming that all the rates go down by 0.25, they’ll be cheap everywhere in a couple of weeks’ times or whenever if they do go down. How do you know they are going to go down?”
Don’t wait. Take action now is the most important thing. Whatever it is, if there’s a saving, take it now. If rates go up or down, all the lenders are in a competitive market, so it’ll go up or down accordingly.
Don’t procrastinate. Don’t wait for rates to drop or to see what the next best deal would be out there.
Kevin: That’s a really great piece of advice. The thing that I found, too, is those who wait for things to become absolutely perfect generally end up doing nothing because it never, ever meets their expectation.
Andrew: Absolutely. It’s the old thing of waiting for the property market to drop, too, because they’re going to buy cheap, and then they realized they missed the boat. It’s the same thing with trying to shop, and the perfect storm very rarely arrives.
Kevin: Andrew, just before I let you go, what about those honeymoon rates? Something we should be aware of?
Andrew: Absolutely, Kevin. Whilst they look good in the banks’ and everyone’s marketing and advertising material, they very rarely end up on your end deal coming out as a better deal. Generally, they come to a higher rate when they expire, and most people think, “Oh, I can refinance or do something about that,” and then you can’t – you’re generally locked in for certain period or those fees.
The banks are smart. They know that they want to claw back that cheap rate to get the client in the door. The honeymoon rates very rarely come out ahead of just a long-term discount we can apply.
Kevin: That in itself is another great reason to use a broker, because brokers know what these honeymoon rates are like. They can take the long term in terms of your lending, as well, Andrew.
Andrew: Absolutely, Kevin. Yes.
Kevin: Very good. Great advice there from Andrew Mirams at Intuitive Finance on some of the refinancing pitfalls for you. Andrew, once again, thanks for your time, mate.
Andrew: My pleasure, Kevin. Thanks.