Understand the mortgage refinance process

Understand the mortgage refinance process
If your home loan rate, repayment frequency or lender is leaving you unsatisfied, you might consider a mortgage refinance.

The process for refinancing depend on the conditions of your current home loan agreement. You'll need to weigh up the costs of any penalty fees - if they exist - versus the savings you'll make by switching loans.

However, it's wise to understand the process before you launch into changing the terms of your loan or switching lenders.

Why refinance?

Homeowners refinance for a number of reasons - whether it's to achieve a lower interest rate, switch from a variable rate to a fixed rate or vice-versa.

You might need to refinance to make significant changes to your mortgage repayments.

Loan conditions often stipulate how much you can pay towards your repayments, so if you have a major change in your financial situation, you may need to refinance to adjust this.

For example, you could be welcoming a new child into the family, with one parent taking time off work or reducing their hours.

By contrast, you could be in a position where you're able to work longer hours and can pay more off your loan accordingly.

Even if you're not sure whether your financial situation demands a  mortgage refinance, there's no harm in having a chat with an experienced lender to get a more accurate grasp of the situation to help you move forward.

For some people, refinancing might not be right. For example, if you're a freelancer, then you would need to have a very clear idea of your annual income and how you can balance repayments.

In such a case, it might pay to stick with your current mortgage instead of increasing your repayment amounts, so you can be sure that you can comfortably make your repayments every month.

How does the mortgage refinance process work?

You'll need to have a chat with your current lender before you consider talking to another firm.

It's necessary to find out what costs are involved if you head down this path.

The next step requires you to choose what's right for you. This will change from borrower to borrower, depending on factors like your income, weekly outgoings and whether there could be a significant change to your finances in the short- to medium-term.

While there are plenty of loans on the market, it's crucial to spend the time thoroughly reviewing the options with your unique circumstances in mind.

After all, there's no point refinancing if you're going to end up in the same position as you are currently - or a worse one!

If you're unsure, consult your lender about what's right for you. It's also worth considering making the switch to an online lender.

These kinds of borrowers offer very competitive rates but have the added benefit of not having the overheads that lenders with physical branches have - potentially resulting in the perfect home loan for you.

Once you've settled on the perfect loan, you'll need to make a refinance application. You could even submit your application online!

With loans.com.au, you'll run through a pre-qualification process first. But don't worry - this takes a matter of minutes and can be completed online.

When you applied for a home loan as a first home buyer, you would have had to provide a range of documentation to satisfy the lender of your ability to pay back the loan.

If you choose to take out a mortgage refinance, you'll also need to supply documentation - particularly if you're switching lenders.

Your new lender will let you know what information is required and once they've reviewed the supplied information, they're in a position to send you an offer letter.

Once you sign this agreement, the lender will need to register the mortgage on your property, which acts as a security on your new loan.

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