Refinancing - Your questions answered
A home loan is generally a long-term proposition, but in some situations it can make sense to refinance your mortgage. But is refinancing the right option for you? Here we answer your questions and share some of the things you need to know about refinancing.
What is refinancing?
Refinancing is when a borrower takes out a new loan to pay out and replace an original or existing loan.
Why do borrowers choose to refinance an existing loan?
There are a number of reasons why borrowers choose to refinance an existing loan, some of which are mentioned below:
Circumstances change and an existing loan may not be meeting the borrowers current needs.
To take advantage of a lower interest rate, and reduce monthly repayments.
To access some built up equity in their home to use for other purposes such as renovations or to purchase an investment property.
To consolidate debt from high interest debt, such as credit cards and personal loans, into one lower rate loan.
To access additional features from a new loan, like flexible repayments & redraw facilities, that they may not have with their existing loan.
Is refinancing right for everyone?
If refinancing can save you money on interest or allow you to benefit from one or more of the reasons mentioned above, it could be right for you. However, your existing loan might suit your current circumstances and needs so refinancing may not necessarily be the best option for you at this time.
It's a good idea to keep in mind, that not all mortgage products are the same. A mortgage with a lower interest rate may not have all the benefits of your existing loan, so be sure to carefully consider all rates, fees and features.
Another consideration is whether there are any fees and charges applicable with paying out your existing loan. Some lenders may charge you an early payment cost for paying your loan in advance. This is particularly the case with fixed-interest loans and it’s always best to check up-front. These costs can be large so it's always a good idea to get good advice from your lender or a mortgage broker before making any decisions.
Should I review my loans regularly?
Yes. It's always a good idea to get a Home Loan Health Check performed at least once a year to check that you’re getting the most out of your current loan.
As experienced brokers, we can provide you with a free and thorough review of your existing home loan to help determine whether it still suits your current needs or whether you may be able to benefit from accessing other options.
What's involved in the refinance process?
Once you’ve determined your needs and done your research, including speaking to a broker, beginning to refinance can be relatively straightforward.
1. The application
Your broker will evaluate your circumstances and help you submit your application. You’ll need to provide identification documentation, proof of income (such as pay slips) and list your assets and liabilities. If you’re staying with your existing lender, you may not need to provide as much information.
2. Getting a valuation
Lenders will often require a valuation on your home to determine how much you can borrow. This bank valuation generally requires an inspection of the property by a licensed valuer. Remember to prepare for the valuation, ensuring your property is presented in its best light to gain an accurate valuation price. Tidy the garden, reduce clutter in the house and finish those small maintenance jobs you’ve been putting off.
3. Receiving approval
Once your lender is completely satisfied, full loan approval is granted. In many cases you’ll receive an approval letter with a copy of the loan contract to review, sign and return to the lender. Your funds will usually be cleared once all signed documentation is reviewed. Your lender will then arrange settlement of your existing loan and establishment of your new one.
Remember that while refinancing can save you money, it may not be the right move for everyone. Take care and get advice on whether it’s the best route for you.
Before taking any action, contact one of our highly experienced mortgage brokers to find out more about refinancing and our free home loan health checks as we can help you select a suitable loan product for your needs and circumstances.