Finding a cheaper home loan than you currently have doesn’t necessarily mean you will be better off after you make the change. Your Mortgage lists the following traps to look out for when making the refinancing decision
  1. Automatically refinancing with your current lender without shopping around
  2. Assuming lower rates will automatically save you money without considering overall cost versus savings
  3. Procrastinating over applying for a home loan while waiting for interest rates to drop. Don’t gamble on better future rates
  4. Failing to get your new rate locked in writing while processing takes place
  5. Switching loans or lenders without clarifying in writing whether the total costs (including establishment fees, legal fees, stamp duty fees, ongoing fees) are outweighed by the savings in interest
  6. Not having a lender or broker evaluate your credit rating and regularly revise your financial position
  7. Not knowing the true cost of refinancing. Make sure your lender provides you with written statements on application fees, deferred establishment fees, or break costs on fixed loans.
  8. Falling prey to the lure of honeymoon rates, which ultimately revert back to their original or higher rates at the end of the introductory period
  9. Falling prey to predatory lending because you haven’t done your due diligence to find the right home loan
  10. Refinancing to withdraw equity in order to pay off credit cards with no intention of changing spending behaviour. Don’t turn what could be a short-term debt into a long-term debt
  11. Entering a refinance deal that gives you relatively little benefit but pushes your loan value above 80% of your home's value so that you pay lender’s mortgage insurance
  12. Change to an identical product from another lender just to save 10 basis points on your loan, so that you're actually worse off after accounting for fees and charges
  13. Borrow more than you need and end up facing repayments you cannot afford – leaving you on a downward spiral and needing to refinance again
  14. Switch from variable to fixed or fixed to variable because that type of rate is lower at the moment – then wonder why you did it when rates change again
  15. Roll smaller debts into your home loan, but extend the term of your home loan so that you are effectively paying interest on small debts over 30 years, instead of the previous one or two

Source: Your Mortgage and eChoice