THE 'IF'S' AND 'BUT'S' OF MORTGAGE RE-FINANCING

These days borrowers are likely to re-finance their home loan during its term – after all, personal circumstances change and there are always new loan products on the market. What does this mean for the average home owner? Where their parents and grandparents were used to the ‘loan for life’ concept, today’s home owners are looking at loan terms have that have reduced even since the 1990’s from an average of seven years to an average of three to five years. Switching loans is usually done because personal circumstances change and financial saving or gain can be made by doing so. Some people may want to consolidate debt from several sources, or access their equity to buy another property or asset. Some may simply be on the lookout for a better loan – always a possibility in today’s competitive market. There are now hundreds of products on the market and product innovation is also a fact of life as savvy loan providers look to attract clients. There are many options already out there: 100 percent-plus loans for those who haven’t got the savings, professional packages for high earners, home equity loans for investors, reverse mortgages for retirees and even no-document or low-document loans for the self-employed.

At the same time, be aware that new products generally come at a cost which may eat into any advantages gained. After all, banks aren’t in it just for the fun of it. Is there a price for leaving the party early? Deferred establishment fees, for example, typically apply if a loan is exited within three to five years.There are usually establishment fees for any new loan entered into. Every contract is different and the fine print of your current contract needs to be examined as well as the fine print in the new products on offer. Other fees and charges may include application fees for the new loan, approval fees or additional stamp duty costs. Are the long term benefits worth the cost? There are many ‘if’s’ and ‘but’s’ when it comes to home loan products. Fixed or variable rates, for example. Which is better? When interest rates have been low for some time, many people start thinking and talking about fixing their interest rate, thinking it will surely rise in the near future, rendering the cost of their loan more expensive and putting a strain on the family budget. Whatever the question - fixed or variable, which of the hundreds of loan products on the market, or even whether to switch loans at all - it pays to seek advice from a well-referenced accountant or financial adviser before making changes.

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