Remortgaging can offer homeowners numerous benefits: from securing lower interest rates to accessing equity for major expenditures. However, the process is not without its pitfalls. Canadians eager to remortgage can sometimes make mistakes that cost them in the long run. In this article, we’ll highlight some of the most common errors and offer advice on how to sidestep them.
1. Not Shopping Around for Better Rates
Many homeowners automatically turn to their existing lender when considering a remortgage. While loyalty can sometimes have its rewards, failing to shop around might mean missing out on more competitive rates elsewhere.
Tip: Engage with multiple lenders and mortgage brokers to get a broad sense of the available rates and terms.
2. Forgetting About the Fees
Remortgaging can come with a range of fees: legal costs, valuation fees, and potentially early repayment charges from your current lender. Overlooking these can result in unexpected expenses.
Tip: Always request a detailed breakdown of all associated costs before finalizing a remortgage deal.
3. Not Considering the Overall Cost
While a lower interest rate might seem attractive, it’s essential to consider the overall cost of the remortgage, especially if you’re extending the loan’s term. You might end up paying more over time even with a lower rate.
Tip: Use mortgage calculators to gauge the total cost over the term of the loan, not just the monthly savings.
4. Overestimating Property Value
Some homeowners overestimate their property’s value, expecting to release more equity than is realistically available. This can lead to disappointment and potential financial setbacks.
Tip: Obtain a professional property valuation before deciding to remortgage.
5. Overlooking the Mortgage Term
Opting for a longer-term may lower monthly payments, but it can also mean paying more interest over the loan’s life. On the flip side, a shorter term might save on interest but could result in higher monthly outgoings.
Tip: Carefully consider your long-term financial goals and current budgeting constraints when choosing a mortgage term.
6. Neglecting Your Credit Score
Even if you’ve been consistent with your current mortgage payments, other financial issues might have impacted your credit score. A lower score can affect the interest rates available to you.
Tip: Check your credit score and report before starting the remortgage process. Address any discrepancies and consider delaying the remortgage if needed to improve your score.
7. Waiting Too Long
If you’re remortgaging to secure a lower interest rate, waiting too long might mean missing out on the best deals, especially in an environment of rising rates.
Tip: Stay informed about market trends and be proactive in seeking out a remortgage when it’s most beneficial.
8. Not Considering Future Plans
Your future plans, be it selling the house, moving, or significant life changes, can all impact the type of mortgage product that’s best for you. Locking into a long-term deal might not make sense if you’re planning to move in a few years.
Tip: Always align your mortgage decisions with your broader life and financial goals.
While it can be tempting to release as much equity as possible, especially if you have substantial home equity, borrowing more than you need can lead to unnecessary interest costs.
Tip: Borrow only what’s necessary for your immediate needs or financial objectives.
10. Overlooking Penalties
Many mortgages have penalties for paying out the mortgage early. When considering remortgaging, homeowners might focus on the benefits and forget about any penalties that might apply, leading to unexpected costs.
Tip: Check the terms of your current mortgage for any early repayment charges. Factor these into your calculations when assessing the benefits of remortgaging.
11. Failing to Lock in Rates
In a volatile market, interest rates can fluctuate rapidly. If you’ve found a good deal, delaying can mean losing that rate.
Tip: When you find a favourable rate, inquire about locking it in. This ensures that you’ll get the agreed rate even if market conditions change before finalizing the remortgage.
12. Not Reviewing Loan Features
Beyond the interest rate, other loan features can impact your remortgage experience. These might include options for extra repayments, offset accounts, or redraw facilities.
Tip: Understand all features of the new mortgage product. Ensure they align with your needs and that you’re not paying for extras you won’t use.
13. Overlooking Insurance Implications
Changing your mortgage might impact your home insurance, particularly if you’re increasing the loan amount or the property’s stated value has changed.
Tip: Review your home insurance policy when remortgaging. Ensure it still provides adequate coverage. If not, adjust your policy accordingly.
14. Neglecting Long-Term Flexibility
Your needs and circumstances might change in the future. Locking into a mortgage without flexibility (like the ability to switch to a different type of mortgage or make overpayments without penalties) can be restrictive.
Tip: Prioritize flexibility if there’s any uncertainty about your future financial situation or if you foresee significant changes in your finances.
15. Making Assumptions Based on Past Experiences
Just because your last remortgage process was straightforward doesn’t mean the next one will be the same. Market conditions, lending criteria, and personal financial situations can change.
Tip: Approach each remortgaging opportunity with fresh eyes. Re-evaluate your circumstances and conduct thorough research, irrespective of past experiences.
The remortgaging landscape in Canada is dynamic, and homeowners must be diligent and informed when navigating it. Awareness of potential pitfalls and a proactive approach to avoiding them can lead to a smoother process and optimal outcomes. Remember, every remortgage decision should align with both immediate financial needs and long-term life goals.
At Remortgaging.ca, our mission is to empower Canadians with the knowledge and tools necessary to make informed remortgaging decisions.