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.
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
You can shop around and compare home loans yourself.
However, as mortgage brokers, we have access to a broad range of lenders – 40 lenders in our case – 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; and
- Make the refinance process as smooth as possible.
Our specialist mortgage brokers will do most of the leg work for you and make our recommendations. Ultimately, it is up to you to decide whether or not a particular lender or product meets your refinancing needs.
Tip: Did you know that mortgage brokers are required to act in the customer’s best interest at all times, while the banks are not?
Step 6: Obtain a conditional approval
Once you’ve lodged your application, you can expect to obtain a conditional approval between a day and seven business days based on that particular lender’s turnaround time.
Your pre-approval offer letter will have the interest rate, costs of the loan and conditions for formal approval, e.g. subject to a satisfactory valuation.
Carefully go through the offer letter and verify if it matches your refinancing goal.
This is usually where we make a pricing request, i.e. negotiate an interest rate discount if applicable.
Step 7: Order property valuation
Fortunately, for properties in metro areas and prime locations, a lot of lenders will accept a computer valuation of the property. So, there is no need for a physical inspection of the property.
As for properties with no recent data or for very high loan to value (LVR) loans, lenders may insist on a full valuation of the property. This usually takes around three to five business days.
Tip: We can order a free upfront property valuation with some of our lenders.
Step 8: Obtain formal approval
Pending a satisfactory valuation, we obtain formal approval.
The lenders will then send you the Loan Offer documents, mortgage discharge forms, Titles Office – Mortgage Discharge etc. for you sign.
For the mortgage discharge, you’ll need to download the latest mortgage discharge form from your existing lender’s website and submit.
Step 9: Complete settlement
From here on out, much of the work is handled by your new bank or lender.
They will contact your existing lender and pay out the balance, and remove the outgoing financial institution’s (OFI) name from the mortgage.
Step 10: Set up the new loan
Finally, once the settlement is complete, some lenders also send a Welcome Pack, which will outline your new loan details, and internet banking setup.
This is where, you’ll want to ensure that any loan features that you require such as offset accounts, redraw etc. are set up at this time.
For our customers, our post-settlement (customer care team) will stay in touch with you to ensure you’ve got everything set up. If you’re applying through the bank, then you want to talk with your bank’s customer care team to do the same.
You’ll want to check your:
- Date and amount of the first repayment
- Repayment frequency
- Offset/ Everyday account (if applicable)
- Interest rate etc.
And that’s it, you’re all set up to meet your refinancing goals.
How long does the home loan refinance process take?
All in all 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.
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 refi 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 saving 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.