What is refinancing?
When you refinance a home loan, it means taking out a new home loan to replace your current home loan. Your current home loan is paid out by the new loan and you make repayments towards the new loan.
Usually people refinance their home loan because the new loan gives them a loan that is better suited for their circumstances. You don’t have to refinance but, if your personal situation or market conditions have changed since you first took out a home loan, it might be time to review your home loan and make sure it’s still meeting your needs.
Depending on what works best for you and what offers are available, you can choose to refinance your home loan with your current lender or switch to a new lender.
So is home loan refinance the right move for you and how should you go about it? Here’s our step-by-step guide on how to refinance your home loan.
1. Review your current home loan
The first step is to look at your current home loan and work out:
- the amount of time left to finish repaying your loan
- if your loan is fixed, variable or a combination of both
- how long it’s been since you spoke with your broker
- your future plans, both short term and long term
- your current interest rate
- what ongoing or annual fees you’re paying
- how much it’ll cost to exit your loan, especially if you have a fixed rate home loan and may need to pay break costs
It’s also important to consider what you like and don’t like about your current home loan. Do you currently have an offset account? Can you access redraw if you’ve made additional repayments? Does your current lender offer a great online experience? How important are these additional features or services to you?
Have a good understanding of what your current loan offers, what you want from your home loan and whether there are any gaps.
2. Compare home loans
Now that you know what you have and what you want, speak with your mortgage broker regarding the below points:
- Fees. Some home loans might offer a low interest rate but come with high annual or ongoing fees. There might also be upfront costs involved in moving to a new lender. Make sure you’re getting a good deal after accounting for all the costs.
- Features. Will the new loan offer you all the features of your current home loan or at least the features that are important to you?
- Flexibility. How much flexibility do you need? Would you like to have certainty over your repayments or would you like to be able to make extra repayments or vary your repayment frequency? Does the home loan offer the right balance for you? Is the home loan you’re considering fixed or variable and which is right for you?
What you need to figure out is whether there is a home loan that fits your needs better or offers a better deal than your current home loan. If there is, move to step 3. If there isn’t, it might not be the best time for you to refinance.
3. Apply for a new home loan
If your current lender isn’t able to offer you what you’re looking for, then it could be time to refinance.
The process is similar to applying for a home loan and can be done through your mortgage broker.
You’ll need to provide:
- personal details including your expected future circumstances
- financial information, including income, living expenses and debt
- property information.
Having your documents prepared will help this process go more smoothly.
The new lender will assess your application, check your credit record and have a valuation done to assess how much your property is worth.
Depending on the lender, you might receive a pre-approval or conditional approval before the valuation is complete, with the final approval coming through when your property has been valued.
4. Sign your new home loan contract
When your new home loan is approved, your new lender is likely to send you:
- a letter of offer for your loan (it might be called a credit contract or loan contract)
- a direct debit form for repayments
- a mortgage form to give your lender security over your property while you’re repaying your loan
- a form to advise your current lender that you’re leaving
You should read the documents your lender sends you carefully before signing them. If you’re unsure about the documents and what they mean for you, consult your lawyer.
If you proceed with the loan and sign the documents, your new lender will arrange settlement with your current lender, which is when your old loan ends and your new loan begins. You may have to pay fees and charges as part of the settlement of the refinancing.