Refinancing can be a great money-saver. Replacing your existing loan can be a chance to lock in a better interest rate, features you actually need or a bank that understands you. However, it can be a bit of a process, so you’ll want to know exactly what you’re up for before you start.
If you’ve been wondering how to refinance a home, it’s your lucky day. Here are all the steps you might need to take to get your refinancing sorted.
Step 1: Understand why you’re refinancing
If you’re thinking about refinancing, there’s clearly something missing from your current loan. What’s your motivation? Common reasons for refinancing include:
Securing a lower interest rate
Improving loan features
Consolidating debt
Accessing home equity
Knowing the answer to this question makes it easier to find the best new loan for you.
Step 2: Compare home loans options
If you’re going to go to the trouble of refinancing, you’ll want to shift to the best new loan. Speak with a mortgage broker, check out some comparison sites, and talk to lenders to determine which loan is right for you in terms of the rate and features. Be sure you are comfortable with your choice of lender before you apply or transfer your home loan to another bank – making applications to multiple lenders can damage your credit score. This might include getting answers to questions like: what are the new conditions of your loan, are there any features you won’t have anymore, or how long does settlement take when refinancing?
Step 3: Crunch the numbers
Refinancing can come with a range of costs. There can be upfront fees on the new loan, exit or discharge fees on the old loan and mortgage registration fees payable to the state government. Bear in mind, Lenders Mortgage Insurance (LMI) cannot be transferred between lenders so even if you paid LMI when you first took out your loan, you will need to pay it again if you plan to borrow more than 80% of your home’s value. Keep in mind also that your new loan term will start all over again. If you take out a 25-year home loan, the years you’ve already spent paying it off don’t get subtracted. Make sure you calculate exactly the amount of interest you can expect to pay over the life of your new loan, and compare it to what you would pay on your current loan. Once you have all the figures available, do the sums to be sure the benefits of refinancing outweigh the costs.
Step 4: Apply for the new loan
Who doesn’t love forms? Refinancing your home loan will mean completing paperwork similar to that for your current loan. You’ll need to provide proof of income (usually several sets of recent pay slips), as well as personal ID. And because you’re already paying off a loan, the new lender will want to see several months of statements for your current loan. A refinancing loan is a whole new loan – no cutting corners, no secret tricks. While it might be easier to prove you can afford to pay it, you’ll still have to go through the motions to secure it again.
Step 5: Prepare for a valuation
If you’re refinancing a home loan, it’s likely the new lender will want to value your home. Make sure you understand how the valuation works and what to expect. Allow time to spruce things up before it’s assessed, even if that’s just planting some new flowers and painting a unicorn on your letterbox. There are lots of small things you can do to maximise your property’s market value.
Step 6: Loan approval
If your application is approved, formal loan documents will be drafted and forwarded to you for signing. Be sure to read the paperwork carefully, and speak with your solicitor, conveyancer or mortgage broker if you have any questions. Behind the scenes, your new lender will get in touch with the old lender to organise the loan changeover.
Step 7: Settlement
Hooray, your refinancing loan is ready to go! On settlement day your new lender will receive the title deeds to your home (previously held by your old lender), and the old loan will be paid out. All you have to do is enjoy a better loan than before (and keep making repayments).
Refinancing is generally a straightforward process, especially if you’ve got all your paperwork on hand and have been keeping up to date with your current loan. With these home loan refinancing tips, you could be rocking a new loan within 4-6 weeks, pain-free.
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Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643.
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