Getting a new home loan to replace the one you have is refinancing. Homeowners have different reasons to refinance, ranging from shortening the length of the repayment term to paying off high-interest debt.
Here are the 10 most asked questions about refinancing, answered by our mortgage experts.
10 Frequently Asked Refinancing Questions
1. Why should I consider refinancing?
There are several valid reasons to refinance your home loan:
- You want lower monthly repayments
One way to increase your cashflow is refinancing your mortgage. A newer, better home loan allows you to free up some money by reducing the amount of repayments you’re paying for your loan. Refinancing for a longer period, like a new 30-year loan, is a way to do it.
- You want to use your home’s equity for cash-out
Some homeowners refinance to take cash out to use the money for home improvements, debt consolidation or other major purchases. Taking cash out means using your home’s equity during refinancing. Note that cash out while refinancing increases your debt.
- You want to pay off your mortgage sooner
Refinancing for a shorter-term loan is helpful if you want to pay off your home sooner and lower the total amount of interest you’ll pay on it. Your monthly repayments will increase but you will save thousands of dollars in interest over the life of the loan.
2. When is the best time for me to refinance my mortgage?
As our mortgage specialists suggest, if you tick one or more of the following boxes, you should consider refinancing your mortgage:
- Interest rates are falling
- Your home has significantly gone up in market value
- You are looking to renovate your home or invest in a property
3. What are the documents required?
Refinancing is similar to applying for your original loan. In most cases, your lender will ask you to present the following documents:
- Recent payslips to verify your income
- Latest tax assessment notice
- A letter from your employer confirming your salary
- Identification certificates, like your passport or driver’s licence
- Complete financial and credit documents (credit card statements, your current mortgage documents, bank account statements, etc.)
If you have made up your mind about refinancing, we recommend having these documents prepared. A Home Loan Experts broker can help with this, saving you time and hassle.
4. How long does the refinancing process take?
Refinancing period varies according to your lender and how promptly you submit the documentation required. The entire process, from applying for the loan, to your new lender arranging the transfer of debts with your current lender can usually take between two and four weeks.
5. Does refinancing affect my credit rating?
Yes. Lenders view refinancing as a credit application, which is why it can hurt your credit rating if you do it frequently. In a similar way, your application being rejected for a refinance can make a dent in your credit score.
Talk to our mortgage brokers to find out how to preserve your credit score while refinancing.
6. What costs are involved in refinancing?
Refinancing can be expensive. You will usually have to pay break fees to be released from your current mortgage. This is why some people avoid refinancing if they are, for example, near the end of a fixed-rate term. Your new lender might ask you to pay an application fee, too, as well as closing costs.
7. How often can I refinance?
There is no limit on how many times a homeowner is allowed to refinance. However, many lenders require a waiting period between when you close on a loan and refinance into a new one.
Some lenders also have a requirement for homeowners to wait after refinancing before refinancing again – generally at least six months. Frequent refinancing can lower your credit rating, too. Talk to a Home Loan Experts mortgage broker for information on how refinancing will affect you.
8. Are refinancing and topping up your loan the same thing?
Refinancing and loan top-ups are two different home loan features; each has its own set of benefits. To make it clearer,
Refinance = Involves switching to a new home loan
Loan top-up = Involves increasing your existing home loan and paying off a portion of it over a shorter term.
Choose which is best for your situation but keep in mind that most fixed-rate loans don’t allow top-ups.
9. Will refinancing affect my loan in the long term?
Your refinancing situation might affect your loan in the long term; both in positive and negative ways.
- Switching to a home loan with lower interest rates over the same term will save of you thousands of dollars over the life of the loan.
- Switching to a longer loan term will lower your monthly repayments but you’ll end up paying more overall.
For more information, here’s our page on what questions to ask your mortgage broker when refinancing.
10. Who should I refinance with?
Different lenders offer different refinancing options and benefits depending on your current situation. Our mortgage Experts will search the 50-plus lenders in our panel and find the best refinancing option for you. Talk to one of our brokers today! Call us on 1300 889 743 or fill out our online enquiry form.