A general rule of thumb is that homeowners should consider refinancing every three to four years to ensure that they’re getting the best deal possible.
It’s no secret that banks often offer better interest rates to new customers than existing ones. Moreover, with banks offering refinance cash backs and waived application fees, it is a worthwhile exercise to consider refinancing.
Luckily, the refinance home loan process is a lot more straightforward than what it used to be.
Here’s what the refinancing process will look like for most borrowers.
Step 1: Understand Why You’re Refinancing
First things first, you should have a clear understanding as to why you’re refinancing; be it to access a better interest rate or to reduce your monthly repayments, or to access some equity from your property.
Knowing this upfront will make it easier for you to identify the outcome you desire and the home loan product that’s suitable for you.
No Serviceability Required
We know a major lender that offers dollar-for-dollar refinancing, with no serviceability required if you have a clear payment history in the last 12 months. Dollar-for-dollar refinancing means your new loan will be for the same amount as your existing loan but with new terms – such as a better interest rate. To be eligible:- The new interest rate must be lower than the existing loan
- The LVR must be below 80%
- The new loan must be in the same name(s) as the existing one
- There must be no change in the borrower’s primary income source since the loan was established
Step 2: Know The Costs Of Refinancing
There are a number of fees you need to consider when refinancing such as mortgage discharge fees, loan application fees, valuation fees, mortgage registration fees, ongoing lender fees etc. which in total can be anywhere between a few hundred to a few thousand dollars.
The refinancing fees vary depending on the lender you apply with, and the product you qualify for, as such carefully work out whether refinancing makes financial sense to you.
That said, banks are always competing against each other to attract good borrowers with lower interest rates, refinance cash backs, waived loan application and set up fees.
Tip: Refinance cashbacks are a good way to offset the initial cost of refinancing, and to pocket the difference.
Step 3: Figure Out How Much Equity You Have
Your equity is the difference between your property value and the mortgage balance owing on the property.
For example, if your property is worth $500,000, and you owe $400,000, then your equity is 20% ($100,000) of the property value.
You can use our Home Equity Calculator to calculate your equity.
Generally, to refinance you’ll need minimum equity of 5%; however, ideally you’ll want at least 20% equity so as to avoid Lenders Mortgage Insurance fees.
Step 4: Get Your Documents Ready
When refinancing, you’ll be required to provide your:
- Last 6 months home loan statements which show the total amount owing to the bank.
- Recent council rates notice and building insurance on your home.
- Last three months’ unsecured debt statements such as credit card statements, personal loan and car loan statements etc.
- You’ll also need to provide your 2 most recent payslips, bank statements and IDs.
There’s usually a few additional case-specific and lender specific documents as well.
Step 5: Shop Around With Multiple Lenders Through A Broker
Speak with the broker about your refinancing needs and current situation. Brokers can provide you new lender options based on your needs and budget. They will also let you know if the new lender provides refinance cashback offers.As mortgage brokers, Home Loan Experts has access to more than 50 lenders; as such, we can help you:
- Find a good deal and a good rate based on your situation
- Help you understand your options
- Complete the necessary paperwork
- Make the refinance process as smooth as possible
Step 6: Get Your Paperwork In Order
Once you have chosen a lender, the application process is similar to when you applied for your existing loan. Once you select the lender, the broker will help you fill out an application form. You will need to provide various details, such as earnings, expenses, assets and liabilities. The broker will prepare all the paperwork and submit it to the lender. You’ll get formal approval after the lender provides you with the closing disclosure. If you are refinancing with a new lender, they may charge you an application fee to cover the administration costs. In most cases, it is $395. Tip: It’s best to have your documentation ready before starting the refinance process to make it go more smoothly.Step 7: Prepare For The Appraisal
Some lenders may want to do a revaluation of your property. Your broker will confirm if it’s needed. Fortunately, for properties in metro areas and prime locations, a lot of lenders will accept a computer valuation (also called a desktop valuation), rather than requiring a physical inspection of the property. As for properties with no recent data or for very high Loan-To-Value Ratio (LVR) loans, lenders may insist on a full valuation, which usually takes around three to five business days.Tip: Home Loan Experts can order a free upfront property valuation with some of our lenders.
Step 8: Obtain An Approval
Once paperwork submission and home appraisal are complete, it’s time to close your loan. Your lender will send you a document called a Closing Disclosure which describes all the details of your mortgage including loan fees, interest rate, insurance, closing costs and other expenses. It is important that you review every term and condition thoroughly because this is where you sign your loan documents. It can usually take 4-8 weeks in total to get approval depending on your individual situation. If you want to get out of the deal after you’ve closed your loan, you can do it at any time but it should be before the end of the grace period given by the lender or it will be extremely expensive. You may also get a conditional approval if the new lender is willing to provide you formal approval as long as you meet their pending conditions.Step 9: Complete Settlement
If you are refinancing with another lender, your broker and new lender will let the current lender know that you’d like to discharge. For this, you will need to fill out a discharge form. You might want to check whether your current lender charges discharge fees. The usual fee for most major lenders is $350 but it varies depending on the lender. Your current lender will give you a final pay out figure when they know the exact date of settlement. The new lender will pay out your old lender and transfer the mortgage. You don’t need to fill out a discharge form if you are refinancing with the same lender.Step 10: Set Up The New Loan
Congratulations – you have successfully refinanced your home loan. You will receive a welcome letter including the agreed-upon interest rate and repayment terms. You can also subscribe to any loan features you require, such as a redraw facility, offset accounts or other benefits and features. For our customers, the Home Loan Experts post-settlement customer care team will stay in touch with you to ensure you’ve got everything set up. Now, you’ll start making repayments to your new lender after carefully checking:- Date and amount of the first repayment
- Repayment frequency
- Additional features as agreed upon
- Interest rate
And that’s it, you’re all set up to meet your refinancing goals.
How Long Does The Home Loan Refinance Process Take?
A standard home loan refinance process can take up to a month. This can be shorter or longer depending on the particular lender’s turnaround time and the complexity of your application. If it’s a clean file and a fast lender, one month is likely from submission. Some lenders can take weeks to even pick up the file. Usually, if a lender is running a particularly attractive refinance offer or cash backs, there can be a delay due to a large number of new applications. Alternatively, there’s a fast refinance option offered by a few lenders that can be approved and settled within a couple of weeks.Tips For Refinancing
- Make all your repayments on time as any missed or late repayments are reflected on your credit file
- Check your credit file to ensure it is clear of any adverse listings
- Calculate your comparative savings by comparing the total cost of the loan including costs. We can provide you with a detailed breakdown of the cost and the comparative savings with the refinance
Are You Still Confused About The Refinance Process?
We’re here to help! Please talk with one of our specialist mortgage brokers, who’ll guide you through the process of refinancing and help you make an informed decision.
Call us on 1300 889 743 or fill in our online assessment form to get started.