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What is refinancing?

Refinancing is the process of moving your home loan from one lender to another.

Throughout the process of taking out a mortgage with a new lender, there are multiple different loan products to choose from. To understand all the different loan products with each individual lender, you need to conduct thorough research.

In this post, we provide a step-by-step guide of how to refinance your home loan, the benefits of refinancing, and how to make the process as smooth as possible.

Benefits of refinancing your home loan

Before you consider how to refinance your home loan, it’s important to establish why you want to do so. Some of the main reasons to refinance your home loan include:

  • Save money: reduce mortgage payments with lower interest rates and fees, helping you pay off your home loan quicker
  • Reduce your repayments: extend the loan term to lower repayments and increase disposable income
  • Access equity: borrow from your home’s built-up equity to invest in property or managed funds or to complete home renovations.
  • Consolidation: Consolidate high interest rate loans such as: credit cards, car loans, into your home loan refinance to improve your cash flow.

How to refinance a home loan: a step-by-step guide

Assess your current home loan

First, assess your current situation to determine whether a new home loan is feasible and will benefit you. It is important that refinancing your loan is in your best interest.

Situations from which you could benefit from refinancing your home loan include:

      • If it’s been a few years since you reviewed your mortgage terms chances and you can negotiate a better rate and terms.
      • Your fixed-rate loan term is about to end
      • To free up equity in your home for future investment purposes.

Research and compare lenders

Next, research the available home loan options to determine how much you could save by refinancing.

The first way to determine your refinancing options is to go directly to lenders. Learning directly from the lender and doing it yourself takes a significant amount of time. However, it has the advantage of dealing with them directly.
Alternatively, you could consult a mortgage broker to assist you with a review of your home loan; they’ll present you with various options based on your requirements and financial situation. Additionally, they’ll guide you through the application process: helping you gather the required documents and complete the paperwork correctly.

See more: Mortgage broker vs. Bank

Calculate potential savings from your home loan refinance

There are several things to consider when calculating your potential savings from refinancing your home loan.

      • Interest rates: is the rate on the new loan lower than your current one? Is it a fixed or variable rate?
      • Loan terms: if fixed rate, what’s the term length? Are rates initially low, only to climb after a certain term?
      • Fees: a loan might offer a low-interest rate, but does it have high ongoing fees – or upfront costs?
      • Features: which features will your new home loan provide, e.g., an offset account, redraw facility, etc.? Are they comparable to your current mortgage – or better?
      • Costs: Please note there are fees associated with refinancing your mortgage to another lender and this should also be taken into consideration before making a final decision.

Prepare the required documents

To assess your application, the lender will require the following details and documentation.

  • Personal details: generally verified with two types of ID (driver’s licence, passport, etc.)
  • Family situation: relationship status, number of dependents
  • Employment status and monthly income
  • Monthly expenses
  • Details of current home loan
  • Assets: property, investments, cars, superannuation, savings  etc.
  • Liabilities: existing loans, credit cards limits, car loans etc.

Having these documents prepared helps the application process go smoothly, while delayed, inaccurate, or incomplete information can stall your loan’s approval.

Submitting the refinancing application

Once you’ve found the loan product that best suits your needs, it’s time to submit your application.

Your new lender will evaluate your application along with all the supporting documentation. They’ll also conduct a credit record check, with a particular interest in your repayment history, and a property valuation to determine how much your home is worth. The lender may give you pre-approval before completing the valuation process. They will then provide final approval after calculating the value of your home.

It’s crucial to fully understand the terms of your new home loan before submitting your application. Subsequently, this is where working with a mortgage broker is most helpful, as they’ll clearly explain the loan terms to you. Alternatively, you can seek advice from your property lawyer or financial advisor.

Completing your home loan refinancing application

Once your application is approved, you’ll be sent a letter of offer, contract, and documentation that sets out the terms of your mortgage. After carefully reading them, signing them and returning them to the lender, they’ll contact your previous lender to transfer your mortgage. The home loan refinancing process is now complete, with you making repayments on your new mortgage.

How long does it take to refinance a home loan?

In most cases it takes approx. 4-6 weeks to refinance your home loan, with a month being average. The speed with which your application is processed is determined by:

  • The quality of your application, i.e., whether you attached the required documentation and how detailed it is
  • The strength of your application, i.e., results of your credit check, repayment history, etc.
  • The volume of mortgages the lender has to process

Subsequently, the best way to refinance your mortgage quickly is to provide all the required paperwork and ensure it’s error-free.

How often can you refinance a home loan?

No rule stipulates how often you can refinance your home loan: it just has to make financial sense. With that in mind, consider the following:

  • Refinancing costs: will processing fees and the cost of consulting accountants, lawyers, etc., negate any financial gains?
  • Increase in equity: has your house sufficiently increased in value since your last remortgage or valuation?
  • Available rates and loan terms: are the loan products on the market better than your current arrangement?
  • A fixed-rate mortgage: you won’t be able to refinance for the duration of your fixed-rate term

Read more: Home Loan FAQs: Your Comprehensive Guide

Refinancing your home loan with K Partners

To learn more about how to refinance your home loan, schedule a consultation with one of our team of specialists at K Partners – top ranked mortgage broker in Melbourne. We’ve advised thousands of clients on the best way to refinance their mortgage to most improve their financial situation.

Contact us to book your free mortgage consultation

Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.

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