If you’re looking for a way to manage your monthly mortgage payments, refinancing your home loan might be just the solution.
Refinancing entails taking out a new home loan and using it to pay off your current home loan and doing so can have various benefits.
But, there are several things to consider first.
Let’s look at how to refinance a home loan in Australia, the steps to do so, and whether it’s a viable option for you.
Step 1: Define What You Want To Get Out of Your Home Loan Refinance
There are a few reasons why people choose to refinance their home loan depending on their financial situation, including:
- to get a better interest rate on their home loan,
- to consolidate debt,
- to add features like an offset account or redraw facility to their home loan,
- to extend the home loan over a longer period and decrease the principal and interest repayments (via changes to family circumstances), or
- to access equity.
Defining what you want to get out of your home loan refinance and why will help you in step two.
Step 2: Compare Different Home Loans To See Which Best Suit You
Choosing the correct product that best suits you is hard, especially when you don’t know what products are out there for you.
This is where the help of a mortgage broker can come in handy with refinancing home loans. Once you’ve defined why you want to refinance your home loan, they are able to advise you on which lenders best suit your needs and if home loan switching will benefit you.
Mortgage brokers are experienced in home loan refinancing and have good relationships with most lenders – so they’re likely to be able to negotiate a more comparable rate for your new loan.
Step 3: Calculate All the Costs of Your Home Loan - It’s Not Only Principal and Interest Repayments to Consider
Calculating how much refinancing your home loan will cost is essential as you might find it too expensive and more worthwhile to just continue with the ongoing arrangement on your current mortgage.
Amongst others, the two main costs to establish are:
- the exit fees of stopping your current loan (discharge or break cost), and
- any upfront costs attached to your new loan (for example, the mortgage registration fee or lender’s mortgage insurance, if any).
At this point, you should consider whether you want a fixed interest rate loan, a variable interest rate, or a split home loan with a combination of the variable interest rate and fixed-rate loan. This will not only affect the amount of interest you’ll pay on your home loan but also what benefits you could be eligible to receive, such as an offset account.
Many websites offer online refinance calculators to give you an idea of what costs to expect on refinancing home loans and their ongoing fees. Having an idea of what to expect can save money in the long run because you’ll know what the benchmark should be.
Step 4: Apply For Your New Refinance Home Loan
After you’ve narrowed down which lender you’d like to apply to refinance your home loan with, you can prepare your home loan application.
You’ll need to start by gathering all the required documents for submission.
Documents needed to apply for refinancing home loans include (but aren’t limited to):
- personal identification details,
- family circumstances that might affect your expenses, such as marital status and number of dependents,
- proof of employment,
- bank statements and copies of bills to indicate expenses,
- proof of assets owned, and
- proof of any liabilities and savings.
Being approved for a home loan refinance isn’t any easier than applying for a new home loan application – you still need to meet all the new credit provider lending criteria. Lenders are extremely particular when approving home loans and you want to ensure that all documents are present, correct and up to date. A good credit history score is helpful too!
Your mortgage broker will ensure that all your paperwork meets the home loan lending criteria and submit your application to your chosen financial institution.
The timeframe of obtaining a home loan approval really depends on the level of business the lender has at the time of submission, some might provide you with an approval in days while others might take weeks.
Step 5: Approval and Settlement of Your Home Loan
After you sign your new home loan contract, settlement occurs and your old mortgage will be paid off via the new one.
It is our job to submit a Discharge of Mortgage form to close out the account on any previous home loans once both parties have signed it.
You will receive a mortgage contract verifying:
- the home loan amount, and
- terms (repayment type, length of loan, features, fees, etc.)
The contract should include the direct debit form to nominate which account to draw your mortgage repayments from.
Things To Consider Before Refinancing Home Loans
Refinancing your home loan can come with some adverse situations:
- If you had a fixed-rate mortgage on your initial home loan term, there is always a chance that interest rates might rise and you could end up paying more. Take extra care in assessing this. In addition, there could also be a break cost for breaking your fixed loan.
- Refinancing a home loan to lower your monthly principal and interest repayments will increase the loan term. Due to ongoing interest, this means that you will probably pay more money over the long run.
- If you are refinancing a home loan to access equity, a financial institution will require you to have paid off more than 20% of the current property value, thus only lend up to 80% of the value of the property.
- If you have missed a mortgage repayment, have other loan discrepancies or don’t have secure employment then there is a good chance that your home loan application won’t be viable for the new lender. Remember that numerous declined applications can affect your credit history score.
Finding the perfect credit provider, whether it’s your current lender or a new lender, to refinance a home loan can significantly improve your short and long-term financial situation. However, there are several factors you have to consider before refinancing your home loan.
As a home lending specialist, the Mortgage Agency is experienced in providing professional financial advice regarding refinancing a home loan.
Our business is built from strong relationships with our clients, we establish your personal circumstances, goals, and what different lenders are able to offer you.
Then, we provide financial advice. Unlike advice from a friend, our advice is financial and not emotional. So, you might not always get exactly what you were expecting, but we can show you why what you were expecting isn’t necessarily always the best option.
Contact us today to get started.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.