Our step by step guide on how to refinance a home loan

With the cost of living on the rise, more and more people are looking at ways to save money. If you have been paying your mortgage for a while, refinancing your home loan has the potential to save you thousands while also helping you to achieve your goals faster.

What is refinancing?

Simply put, refinancing is when you pay out your current home loan by taking out a new loan with either your current lender or a different lender.

With interest rates finally appearing to be stabilising after a period of rapid increases over the past fourteen months, banks and non-bank lenders are becoming clearer on pricing structures and policies moving forward. Now could be a very good time to readdress your current home loan if you are considering home loan refinancing.

The benefits of home loan refinancing

Better interest rate

Refinancing your home loan can enable you to secure a lower interest rate and subsequently reduce your monthly repayments, saving you thousands over the long run.

Changing from a variable to a fixed rate

If your current loan is a variable home loan, refinancing can allow you to switch to a fixed rate, or alternatively you may also be able to access a lower variable rate. Keep in mind with a variable interest rate that there is an element of risk should interest rates rise again.

Debt consolidation

Many Australians also choose to refinance to consolidate and streamline debts into a single loan. Having multiple debts, such as credit cards, home loans and personal loans etc is not only challenging to manage but also means you are paying lots of interest. By consolidating all your debts into a single loan, you can reduce your overall monthly repayments and save on the interest you’re paying.

Better loan features

Refinancing your home loan also allows you to access better features such as flexible rate options, flexible repayment terms, redraw & offset facilities as well as loan portability.

Things to consider before looking at how to refinance your home loan

Whilst refinancing can be beneficial, there are some key things you should first consider.

Look at your current home loan

It is always good to check with your current lender to see if they can offer you a better interest rate. Your mortgage broker can also do this on your behalf. Sticking with your current lender can avoid costly break fees and administrative fees when switching to a new lender.

Compare all the costs involved

Weigh up the costs involved against the benefits and potential savings. Paying a fees to refinance could be worth it if you are going to make significant savings over the loan term with lower interest rates and better loan features.

Consider your current loan value ratio and lenders mortgage insurance

It is important to remember that lender’s mortgage insurance is not transferrable between lenders. If your current loan to value ratio is higher than 80%, if you change lender you will be required to pay lender’s mortgage insurance again.

When considering home loan refinancing it’s advisable to have at least 20% equity and a loan to value ratio below 80% as this will allow you to avoid paying LMI again.

Costs of refinancing

As with anything, there are costs involved. These include break fees if you choose to break your fixed term before it is up and administrative fees when taking out a new loan.

How to refinance your home loan using a mortgage broker

Step One: Engage a mortgage broker

Contact your existing mortgage broker or reach out to a reputable mortgage broker to assist. Find out what you should look for in a mortgage broker here.

Before refinancing it is always good to know what your current interest rate is and any other fees and charges you are paying as part of your current home loan. This information is often listed on your statement, but your mortgage broker will also be able to help. Having this information on hand will assist in working out how your new home, or investment property loan compares.

Step two: Determine the equity in your property

It is a good idea to have your property valued as it may have changed in value. Equity is the difference between the value of your property and the amount owing on your loan. Your mortgage broker will assist in helping to work out your current equity by requesting valuations on your behalf. A key part of this process is making sure you have at least 20% equity in order to avoid any mortgage insurance having to be paid.

Step three: Your mortgage broker will find the home loan which best meets your needs

Your mortgage broker will contact lenders on your behalf to find the best deal. As part of the process they will also likely ask your current lender if they can offer you a better deal. Your mortgage broker will also be able to answer any questions you may have about any recommended loan products.

Step four: Apply for a new loan

Once you have decided to proceed forward you will need to begin the application process, which your mortgage broker will handle on your behalf.

Step five: loan approval

The lender will carry out a credit assessment and review all your documentation. If this is all satisfactory they will approve your refinance.

Step six: settlement

Once your loan has been approved the new lender will pay out your current loan. Once this has been completed you will start making loan repayments with the new lender.

The benefits of using a mortgage broker to refinance a home loan

Refinancing your home loan can be a daunting and time consuming process. Working with a mortgage broker will not only save time, but they will be able to assess your current home loan in line with your budget and goals and they can also often negotiate better deals on your behalf and may be able to access competitive rates not accessible to the general public due to their close working relationships with lenders. In addition to working out the best option for you, they will take care of the application paperwork liaising with the lenders on your behalf throughout the entire process.

If you would like more information on your current home loan, or to find out how to refinance your home loan, contact the team at Townsend Wealth today. A worthwhile investment, we don’t charge for our services but are paid a commission direct from the lenders and banks we work with.

Refinancing FAQS

How long does it take to refinance a home loan?

Refinancing your home loan can take up to a month on average. This is dependent on the complexity of your application and the speed at which your lender actions the request. Some lenders offer a fast refinance option which can be beneficial if there is a critical date which needs to be met.

Does refinancing a home loan impact your credit score?

Unless you make multiple failed applications refinancing won’t permanently impact your credit score. Any refinance request will be marked as a formal credit enquiry and will be on your history for five years. If you continue to pay your repayments on time you will easily rebuild your credit score. Plus, if you refinance with the purpose to consolidate debts this can also positively impact your credit score.

Is it better to refinance with your current lender?

Not necessarily. Refinancing with your current lender may be the better option, but with so many lenders out there, there is every chance a different lender may be offering better interest rates and loan features. One upside of refinancing with your current lender is the process may be quicker as they have all your information already. But don’t let a longer process deter you if you can access a better deal elsewhere.

Can you refinance a fixed rate home loan?

In short yes you can, however, bear in mind that you will likely be charged a break fee if you refinance or choose to end the loan before the end of your fixed term period. Break fees can be extremely costly, so be sure to find out the applicable fees prior.

How much equity do you need to refinance?

Typically, you will need to have at least 20% equity. If you have less than 20% then you will be required to apply for lender’s mortgage insurance, as this is not transferrable from lender to lender.

What services areas do you cover?

Our team assists clients refinance throughout Sydney including North Sydney and the Northern Beaches. We can also assist if you have a property outside of Sydney or in another state.