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Your ultimate guide to refinancing

We walk you step-by-step through the process.

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Mortgages, like so many recurring payments, are easy to set and forget for years or even decades – but should you? No, according to finance experts. That’s because home loan products are changing all the time and lenders regularly offer new deals that could save you money, help you pay off your home loan faster – or generally just help you get into a better financial position.

Our go-to guide below tells you what you need to know to get started on refinancing your mortgage.

Tips on refinancing your home loan.

What does it mean to refinance?

In a nutshell, refinancing refers to paying out your existing loan and establishing a second loan in its place – usually with a lower interest rate and better features.

Why should you refinance?

If you do it at the right time and with the right loan, there are a number of great benefits to refinancing. These include:

1.         Saving money. Secure a home loan with a lower interest rate and lower fees and you could save thousands of dollars in repayments during the life of your loan. This is arguably the most popular reason home-owners decide to make the switch.

2.         Unlocking equity. If you’ve been paying off your loan for a while, say 5 or 10 years, you’ve probably built up equity in the property, and refinancing enables you to tap into that equity to renovate your property or invest in other real estate.

3.         Improving your financial situation. Perhaps you’ve borrowed money from family that you need to pay back, or are struggling on one income due to having a baby. Or maybe you had a bad credit rating when you secured your existing home loan and are currently on a high interest rate. If you’ve since improved your credit rating, refinancing could help you switch to a better loan with a lower interest rate.

4.         Swapping to a mortgage with greater flexibility or features. Home loan products are evolving all the time and if you’ve had your loan for a while now, you may be paying for features you don’t use, or you may want a loan that offers features such as an offset account, split mortgage or a redraw facility.

5.         To consolidate existing debts. If you’re struggling to pay off a number of debts such as credit cards or personal loans, it can be beneficial to refinance and roll these debts into your mortgage so you can pay them off at a lower interest rate.

When shouldn’t you refinance?

There are numerous reasons to consider when deciding whether refinancing is right for you. Here are three common ones:

1.         You’re on a fixed rate home loan. Generally, you want to avoid refinancing if you’re still in the fixed rate period: the discharge fees and break fees to get out of your home loan could greatly reduce or eliminate the benefits.To get a realistic estimate of the costs you may face, you can speak to your current lender about the discharge and early termination fees.

2.         The costs aren’t worth it. This is where doing your research about the fees associated with establishing a new home loan is really important. If the costs to refinance will outweigh the savings you’ll potentially make, it’s probably of no benefit to do it right now.

3.         You can’t get the features or service you want. Maybe you can’t find quite the right loan for your needs, or you currently bank at your local branch and are dubious about switching to an online lender. If refinancing doesn’t tick all the boxes, it might not be the right time to make the switch.

How do you compare lenders?

Comparing lenders is a crucial part of the refinancing process. You can do this via a mortgage broker: brokers arrange around 50 percent of mortgages in Australia and can really help simplify the process and get you a better deal. Or, you could compare loans yourself with web sites like Finder, Mozo and Canstar.

When you find a home loan you like the sound of, request the Key Facts Sheet (KFS) from the lender (or generate it from their website if they have a tool to help you do this). All lenders are legally required to give you a KFS, and it’s a great snapshot of the loan, the interest rate, the comparison rate, frequency of repayments, features of the loan and other important information. Once you have the KFSs for a few different loans it’s easy to compare in order to choose one that fits your needs.

What do I need to apply for refinancing?

If you apply with a broker they will let you know of all the documentation required and walk you through the process. If you apply yourself via the lender, you’ll need to organise the information yourself. Here’s a brief checklist of what you’ll need in order to start the application process:

1.         Proof of identity

2.         Details of your income

3.         Details of your living expenses

4.         Bank statements for all bank accounts

5.         Bank statements for any existing loans, credit cards or store cards

6.         Information about your assets

7.         Council rate notices

8.         Current home insurance policies

9.         Other documentation that the lender may request.

How do I apply and how long will it take?

If you’ve found a home loan that suits your needs and you’re keen to get the ball rolling, you can chat to your mortgage broker or a new lender about how to start the refinancing process. They’ll let you know what documentation is required and give you the necessary forms to fill in.

Bear in mind that lending regulations have changed in the past few years and many banks will request detailed information about your living expenses. This includes everything from what you spend on bills to your entertainment expenses – such as takeaway food, coffees and more.

Once you’ve filled in all the forms and have all the appropriate information required for the new lender, the loan approval, paying out your existing loan and establishing the new loan could take from 4 - 6 weeks.  Once settlement occurs – which also involves exchange of titles and the bank’s registration of the mortgage over your property – you can start paying off your brand new loan.

This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Information in this article is current as at the date of publication. Terms, conditions, fees, charges and credit criteria apply.

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