An incalculable number of Australians are refinancing home loans as rates continue to hike from record lows at the first quota of 2022 to an all-time high of 3.35%.
Australia Bureau of Statistics discovered that in July 2022, over $17 billion worth of loans were moved to an alternative lender – no thanks to the RBA mortgage hikes.
ABS reported that by December 2022, total housing loan refinancing value between lenders hit an all-time high of $19.1 billion.
That said, how do you refinance your mortgage?
Types of Refinancing
There are two most common options for refinancing a home loan:
External Refinance (Switch Banks)
This involves switching your existing home loan from your current bank to a new one that offers better terms, lower interest rates, or more favourable conditions.
It can help you save money over the life of the loan if the new terms are more beneficial.
Internal Refinance (Stay with Your Bank)
With the internal refinance, you negotiate with your current bank to modify the terms of your existing home loan.
This could involve adjusting the interest rate, extending the loan term, or changing other aspects of the loan to better suit your financial situation.
Steps to Refinancing Your Home Loan
Here are 6 key steps to refinance your home loan:
Check Your Credit
There are a ton of perks to having a good credit score, and if you’ve improved your credit rating since your first mortgage, it could help you get a lower interest rate.
So, before commencing the application process, check your FICO scores to keep track of your situation. These score ranges will help know your stance:
- Exceptional: 800 – 850
- Very good: 740- 799
- Good: 670- 739
- Fair: 580- 669
- Very poor: 300- 579
Your application may be approved if your FICO score is at least 620.
Furthermore, lenders will also consider factors like payment history, credit utilization ratio, recent credit application, and more.
Decide Your Target Interest Rate
The interest on the mortgage changes daily, sometimes multiple times per day. Always research current rates.
This is where the expertise of a refinancing mortgage broker becomes invaluable. They can guide you through the intricate details of the process.
That interest rates are lower than what you have doesn’t mean you’ll be able to save money. Home loan refinancing comes with a closing cost of 2-6% of the original loan amount.
Shop Around and Choose a Qualified Lender
Research different lenders and compare their refinance offers. Look for reputable lenders who offer competitive interest rates and terms that suit your financial situation.
Watch Out for High Lending Fees
Pay attention to the fees associated with refinancing, such as application fees, appraisal fees, and closing costs. Ensure that the potential savings from a lower interest rate outweigh these costs.
Remember that some lenders may incur additional charges for certain value-added services.
Be Patient About Signing a Mortgage
Take your time to review the terms and conditions of the new mortgage before signing. Make sure you understand the interest rate, loan term, monthly payments, and any prepayment penalties.
Don’t Open Any Credit During the Refinancing Process
Avoid opening new credit accounts or taking on additional debt while your refinancing application is in progress. New credit inquiries could affect your credit score and your loan approval or interest rate.
Documents you Need to Refinance a Home Loan
When refinancing a home loan, lenders are interested in checking income, insurance, debts, credit history, and assets.
You can streamline the refinance closing process by preparing every documentation you need upfront.
Here is some documentation to gather for a mortgage refinance;
- Insurance information
- Proof of income
- Statement of debt
- Credit verification
- Statement of assets
How to Get approved when Refinancing your Home loan
Refinancing a home loan in Australia requires a structured process.
Research Lenders and Rates
Like picking the perfect wave, choose a lender that’ll likely meet your requirements. Compare interest rates, fees, and loan features across multiple lenders. This will guide your decision-making.
Pre-Approval Application
Get a pre-approval from your chosen lender. Share your financial info for a credit check. Pre-approval gives an idea of your borrowing capacity.
Rate Lock
If the interest rates look good, be sure to lock them in. This protects you from rate hikes while processing your application.
Complete Full Application
Fill out the comprehensive loan application with your lender. Detail matters.
Lender’s Assessment
Lenders delve into your application, documents, and credit history. Be prepared for questions or requests for more info.
Conditional Approval
You’ll receive conditional approval if everything meets their criteria.
Conditions are prerequisites for final approval.
Address the conditions outlined by the lender promptly. These might require that you produce more documents or clarifications. Once all requirements are met, you’ll get the official green light.
Review Loan Offer
That’s not all; examine the final loan terms and conditions the lender presents. Seek clarity if needed.
Schedule a meeting to sign the loan documents. Bring identification, review everything, and sign away.
FAQ’s
Is it good to refinance a loan?
Refinancing might be a significant step if you want to extend your loan repayment term or if you’ve been able to improve your credit score enough to qualify for a better interest rate.
Acquiring a lower interest rate with refinancing lowers borrowing costs and reduces your personal loan payment.
How do lenders benefit from refinancing?
When borrowers refinance their loans, lenders may earn additional interest income if the new loan terms result in higher interest rates or extended repayment periods.
In addition, lenders might charge origination fees, closing costs, or prepayment penalties, generating extra revenue.
Refinancing can also reduce lenders’ default risk by providing borrowers with more manageable payments, potentially lowering the chances of loan delinquency.
Is refinance a remortgage?
In Remortgage, borrower stays with their original lender while in refinance, borrowers fund a new lender.
Many mortgage professionals usually ignore this because both situations require borrowers replacing his/her loan with another.
How many times can I refinance my house?
You can refinance your home as often as you want to, so far you meet the lender’s varying requirements.
What is the purpose of refinancing a home?
Refinancing helps save money on interest, reduce monthly payments, and shorten your mortgage payment period.
It can help save money over time or provide funds for other purposes like renovations or debt consolidation.
How quickly can you refinance a home loan?
Generally, the process can take a few weeks to a couple of months, depending on the lender’s processing time, required documentation, and any potential delays.
Key Takeaway
- Compile all required documents meticulously, ensuring accuracy and completeness.
- Undertake comprehensive research to identify multiple lending institutions and their refinancing offers.
- Prior to applying for refinancing, assess your credit report and rectify any inaccuracies. This step is crucial for all homeowners, including first home buyers.
- Construct a clear financial projection that outlines how the refinancing will impact your monthly budget and long-term financial goals.
- If navigating the intricacies of refinancing proves daunting, consider seeking advice from an expert mortgage broker in Sydney. Their expertise can offer invaluable insights into selecting the most suitable option.
Conclusion
Refinancing your home loan can be one of the best financial decisions you’ll make.
If you plan to remain in your home for a long time, lower your monthly payments or use the equity built to finance the home.
Feel free to refinance as many times as you want to, as long as you reach a mutual agreement and requirements with your lender.
Overall, Intricacies abound in the realm of home loan refinancing, and your aspirations deserve expert guidance.
As a professional mortgage refinancing broker, we stand poised to navigate this financial journey with you.
We have an intimate understanding of the Australian lending landscape, and we’re here to tailor refinancing solutions that align with your unique financial objectives.
Contact us now to explore the possibilities of a satisfying home loan refinancing.