Thinking about refinancing your home loan?

Home owner's guide to refinancing your home loan

7 factors to consider and 6 steps to follow when refinancing

Before we look at whether you should refinance your home loan, what exactly does refinancing mean?

What is refinancing?

In short, refinancing your home loan is the process of:

  • paying out your existing home loan
  • with a new home loan using
  • either your existing lender
  • or a completely new lender
Why refinance your home loan?

Some of the reasons people choose to refinance include:

  • reducing their monthly mortgage repayment by securing a lower interest rate or extending the term of the loan or both.
  • increasing the size of home loan to consolidate debts, buy a new car or access equity to build an investment portfolio.
The most common reason to refinance

Usually refinancing is used to reduce monthly loan repayments through saving on interest with a more competitive home loan.

Paying less interest means you can free up cashflow for other expenses or if your main focus is to pay off your mortgage as quickly as possible, then it makes sense to keep your current repayment amount and pay off your mortgage faster.

Did you know that on a $500,000 home loan, paying an additional $250 per month can shave 5 years off your 30-year loan term!

7 factors to consider when refinancing

Factors borrowers need to consider when thinking about refinancing a home loan include:

  • loan fees
  • interest rates
  • loan structure
  • offset accounts
  • redraw facility
  • loan term
  • lender policy

As you can see, there are a number of moving parts to consider, so it’s wise to speak with a qualified mortgage broker (I know a couple of really good ones 🙂 ) who will:

  • discuss your current circumstances
  • secure the home loan that’s a best fit for your situation
  • ensure it has a competitive interest rate and low fees
  • save you a LOT of time going to each lender yourself
One trap to avoid

If the value of your home loan is greater than 80% of the current value of your property then you may be required to pay lenders mortgage insurance (LMI) as part of securing the new loan. This can be a substantial expense so it’s best to do everything you can to avoid incurring it. As your mortgage broker we can provide you with up-to-date property data to estimate what your property is worth.

6 steps in refinancing your home loan

STEP 1 – CHAT: The first thing you should do is speak to a mortgage broker. Most brokers don’t charge any advice fees, and they have access to a large panel of lenders allowing them to compare many loans at once. You really have nothing to lose by speaking to one.

STEP 2 – PRE-QUALIFICATION: An initial pre-qualification meeting to discuss your current situation and complete a fact find. This meeting can be done over the telephone or in person. This is where we ask you a number of questions about your employment, income, expenses, assets, liabilities and so on. We’ll step you through all that.

STEP 3 – MEET: Your mortgage broker then prepares your personalised advice and books in a meeting with you to present your advice and to gather your supporting documentation. This meeting should be done in person.

STEP 4 – LODGE: When all the supporting documents have been received and you have given the green light to proceed, your broker will lodge your home loan application with the chosen lender.

STEP 4 – ASSESSMENT: Lenders take between 2 days and 2 weeks to assess your application depending how busy the credit teams are. They will go through your supporting documentation and might sometimes request further documentation.

STEP 5 – SIGNING: When a lender approves an application, the next step is preparing loan documentation to sign. You’ll meet with your mortgage broker who will make sure the documentation is correct and guide you through it.

STEP 6 – SETTLEMENT: Your new lender and the outgoing lender communicate to process your discharge authority to release the security you’ve provided for the previous home loan. Traditionally this has taken anywhere from 5 to 15 days but thankfully we now can use a Fastrefi process that cuts the settlement timeframe down to just a couple of days. This means you should be up and running with your new lender the following day. Nice. (Please note that not all lenders are part of Fastrefi, so it won’t work for everyone.)

How long should a refinance take?

Refinancing a home loan is not a fast process. Allow around 8 weeks to complete the process from start to finish. Sometimes we’re able to make it happen quicker, and there are times when it can take longer.

Are you ready to refinance?

If you would like one of our experienced mortgage brokers to assess your options for refinancing your home loan, just get in touch here. This is the Step 1 – Chat from above.

Remember, it’s free of charge.