If you've been thinking of refinancing your home loan, but don't know where to start, here's a step-by-step guide to help you.
Refinancing is the process of switching your existing home loan to a different lender or changing loan products. Many borrowers choose to refinance to take advantage of benefits like lower interest rates, additional features and flexibility, to access home equity or for debt consolidation requirements.
There are a number of pros and cons to refinancing and a lot will depend on your personal situation. But, if you’ve had you current loan for some time and are thinking of making the switch, we’ve put together a simple guide to help you understand the process.
There are a number of key reasons to refinance a home loan:
Better interest rate or lower fees
More frequent repayments
You may be looking at consolidating debt into one home loan
Seeking a faster and more innovative lender
You might want to access equity to finance renovations
Additional features like an offset account
Knowing what you want from a home loan lender should be the first thing you ask yourself, as the answer to this question can help narrow your decision.
loans.com.au has some of the most competitive interest rates in the country and is also a fast, entirely-online lender, so switching to loans.com.au could be a wise financial decision.
There isn't much point to refinancing if you're not going to save money in the long-term. So it’s important to understand your current financial situation and how refinancing could help you depending on your goals.
Review your existing loan in terms of factors like:
The amount of time left until you finish repaying
Fixed vs variable options
How long since you last refinanced
Your current interest rate
Use loans.com.au's home loan comparison calculator to work out how different your ongoing and total repayments will be over the life of a loan.
Also, take into account that refinancing often requires an amount of equity in your property to act as a deposit. The amount required is usually about 20% - the same as a deposit - and equity less than this amount might mean you have to pay Lenders Mortgage Insurance (LMI).
Refinancing can also come with a range of costs depending on which lender you go with, such as:
Upfront fees on new loans
Exit and discharge fees
These costs should be factored into your final decision when comparing home loans.
Now that you know why you want to refinance and have a clear picture of your financial situation, it’s time to compare home loans.
Start by talking to your current lender about other available loan products that may suit your situation better. By having a conversation about your priorities and needs, they may be able to offer you a better deal and save you the hassle or costs of switching lenders.
When comparing different home loan options, be sure to look at more than just the interest rate. Think back to why it is exactly you’re looking to refinance or switch home loans. This will help you identify gaps and narrow down your potential options.
A good home loan lender will have specialists on hand to speak to you and answer your questions about what the right home loan is for you. These specialists should be able to answer questions like:
What interest rates are available on their loans?
What are the steps to get you a new loan?
Which loans have useful features?
How does their home loan application process work?
loans.com.au has home loan specialists with years of experience to help guide you through the process.
Once you've chosen your loan, it's time to begin your application. You can usually do this online, and you will typically need the following documents:
Your last two payslips if employed
The last two years of tax returns if self-employed
Three months of bank statements
Evidence of any rental income
Six months of statements for your current home loan
Three months of statements for any loans you are consolidating i.e. credit card debt
A copy of your current Rates Notice and evidence of payment
Having these refinancing documents on-hand will make your application smoother and easier. If you're refinancing with loans.com.au , we have a process called FastTrax Refi.
We pay out your current lender quickly and you don't have to contact them, we will do it for you.
When refinancing, most lenders will arrange for your property to be valued, even if you already had one done when you first took out a home loan.
Another property valuation might mean your property has increased or decreased in value, which can affect how much equity you have.
Once your property has been valued and your documents have been inspected, the lender will then perform a credit assessment. If your credit history is satisfactory and assuming everything is satisfactory, then they will approve you for a loan.
Once you've been approved, the lender will send through a mortgage contract package, which usually includes:
Direct debit forms
Terms and conditions booklets
Mortgage of land forms
Some of these things can be taken care of online. You then have to sign your mortgage contract and other loan documents and return them to your new lender.
Once all this is taken care of, your new lender will then arrange to pay out your existing loan with your now-old lender. From that date, you no longer have to pay your old lender interest, even if they take their sweet time with discharging the loan.
When settlement is complete, you now officially start making repayments to your new lender.
You've now refinanced your home loan! This whole process can take about three weeks with smaller online lenders, compared to about 6-8 weeks with more traditional, larger banks.
Refinancing can be a bit of effort on your behalf, but the benefits are tangible, and the right lender will take a lot of the work out of your hands.
Although many homeowners put off refinancing out of concern it’s time consuming or requires a lot of work, it’s not a hard process and the benefits could be substantial. In fact, once you’ve found a home loan that appeals to you, it can be as simple as meeting with the lender, providing some documentation and making a decision.
From start to finish, refinancing a home loan process be completed as quickly as a few days or take up to two months. The time it takes to refinance will vary for every homeowner and will depend on factors like the complexity of the loan and the specific lender.
Yes, you can be denied refinance if your financial circumstances have changed since you previously applied for a home loan. For example, if your income has dropped, you may not be able to borrow as much and your application could be declined.