How long has it been since you revisited your home loan? Chances are, your needs have changed, and so has your financial situation.
Although your home loan was set up for particular circumstances at the time, new options, market-leading features and more competitive interest rates are now available.
There is no harm in reviewing your home loan from time to time, just to make sure that it is working for you and providing all the benefits to suit your lifestyle.
In this article, we will show you, step by step, on how to refinance a home loan in Australia.
Benefits of Refinancing Your Home Loan
There are plenty of possible reasons why people refinance home loans. Here are some benefits of refinancing your home loan.
- Get access to the equity in your property for investment purchasing, debt consolidation or renovations.
- Get a more competitive home loan interest rate or additional features that your existing lender may not offer.
- Consolidate debts, such as credit cards and personal loans, into one manageable repayment.
How to Refinance a Home Loan - Step By Step Process
Are you confused about how to refinance a home loan? Here’s a guide to help you out.
1. Assess Your Current Home Loan
Assess your current position by reviewing your loan. You should also review and evaluate your credit file.
You can use a loan calculator to help you assess your financial position.
2. Compare Home Loans
How much money do you need to free up by refinancing? Look into all your options to find the best loan to suit your needs.
This step is easier when you have a mortgage broker to help you out.
3. Calculate Costs
Look into all the fees you have to pay if you opt for refinancing. Always consider discharge costs and other related fees.
4. Apply For A New Home Loan
You need to select the loan product that meets all your requirements before contacting the loan provider directly. Alternatively, you could get help from a mortgage broker who can help you select the best loan and contact the provider on your behalf.
5. House Valuation
Lenders will send a valuer to survey the property and provide an appraisal. The appraised value will be the basis for approving your loan and for setting the loanable amount.
If the bank considers you suitable for the loan, your application will be approved. Settlement, the process where the new lender pays off your old loan, happens shortly after approval has been given.
You will receive a notification once the old loan has been settled.
Refinancing Your Home Loan - Things To Consider
Refinancing your home loan should not be complicated or messy. Many people are afraid of changing their existing home loan because they think it will be a lengthy and complex process.
An experienced mortgage broker makes loan application as streamlined and stress-free as possible.
That's where our experienced mortgage brokers come in. We will sit down with you, compare the products from different lenders and choose the right home loan to suit your unique circumstances. We will make the application on your behalf from start to finish, dealing with the lenders on your behalf and ensure that you secure the best possible product.
A mortgage broker will go through all of the different products available and their features and identify which ones would be most beneficial. Unlike many lenders, who will are limited to offering only their own products and often work on a commission basis, we won’t try to sell you any additional products and we don’t put pressure on you. We provide expert, impartial advice so that you can choose the product that suits you best.
Here’s a refinancing cheat sheet to help you out. Consider each question carefully.
Should You Refinance Your Home Loans?
When choosing a new home loan, it's a good idea to switch to a lender that provides the necessary features that benefit you and fit in with your needs. Be sure to select only the features you really need, as the cost of these extras can add up quickly. Some of those features which can increase the cost of your loan are:
- Branch access – Do you need to walk into a branch to complete your daily banking? The best approach to answer this question is "How many times have you been into a branch in the last 12 months?"
- Do you need to pay an annual fee which provides you with a "free" credit card or a "free" offset account? If these were free features, then why are you paying an annual fee?
- Is the new lender that you are considering providing a rebate to cover your refinance costs?
- What about any other hidden fees?
Our experienced brokers don’t let biases cloud their judgment, giving you peace of mind that we base our decisions based on how well the product will work for you. Contact one of our mortgage brokers to discuss your options today.
How Much Can You Borrow?
It all depends on different factors, but a Borrowing Power Calculator can give you a better idea. This will provide you with an estimate of what your borrowing capacity is and can also give you an idea of what you have available in equity.
If you are planning on paying off existing debts such as credit cards and personal loans before you refinance, don’t include these items when computing your debt.
This calculator only serves as a guide as each lender will provide different amounts based on circumstances. It pays to speak with one of our brokers before counting yourself out based on this calculator.
Call us today to discuss your situation further.
Should You Get a Fixed or Variable Rate?
This is probably one of the most difficult questions to answer and one which is heavily dependent on your circumstances and plans. There are pros and cons for each option.
Consider the points below to help you make an informed decision about the best option for you.
Variable loans provide a rate which fluctuates over the period of your loan. One major reason for these changes are the monthly meetings of the Royal Bank of Australia (RBA).
The RBA meets on the first Tuesday of every month and decides whether they are going to increase/decrease or leave the cash rate on hold. This will then give banks the opportunity to pass on the change to their customers. When rates go down, you could benefit from lower loan repayments. Remember that rates can also increase.
In terms of making additional payments and having immediate access to the funds, variable is definitely the way to go as fixed loan has limitations on being able to do this. You are also unable to make any changes to the loan terms such as increasing your lending.
Fixed rate loans have two main benefits:
- They provide certainty, as you know exactly how much your repayments will be for the duration of the term.
- Fixed loans usually offer lower interest rates.
Depending on your circumstances, fixed rates have a few limitations that need to be considered.
Most banks provide the ability to make a certain amount of extra repayments (normally $10K per annum) which cannot be accessed again until the end of the fixed term.
For example, if you have a 3 year fixed rate, you can pay up to $30K, limited at $10K per annum.
Once you’re locked in and settle your loan, you cannot make any changes to the loan, otherwise, there could be quite sizeable breaking costs.
Split Home Loans
If you can’t make up your mind between a fixed and variable loan, you might want to opt for a split home loan, offering you the best of both worlds. Split home loans combine a portion of the amount at a fixed rate and a portion at a variable rate. The ratio of fixed to variable portions can vary.
Toggle Offset Loans
This type of loan offers a 50:50 split with half the loan set at a variable rate and the other half fixed. There are two offset accounts linked to the loan, one linked to the variable loan and another one for the fixed loan. Toggling between the two will help you optimize your interest savings.
Don’t forget to use a Loan Comparison Calculator to help you compare how you might benefit from the different loan types.
What Will Your Repayments Be?
Repayment amounts will depend on the new terms of the loan and the principle amount. The Loan Repayment Calculator can help you work out what your repayments are likely to be.
Is The Annual Fee Worth The Money You Pay To Have The “Additional” Facilities?
Some lenders offer packages that provide an offset account, a credit card and a discounted interest rate. They convince you to think that you are getting a good deal, but is it as good as it seems?
There are lenders that offer basic (no frill) loans with redraw facilities which is practically the same thing, and you get a lower rate without an annual fee.
Instead of having a separate offset account which is linked to your home loan, you make additional repayments directly into your home loan which reduces your interest and when you want access to the extra funds, you simply complete a transfer online and you have access to it right away.
Costs Involved when Refinancing Your Home Loan
Before deciding about refinancing your home loan, you should be aware of any costs associated with switching lenders. Although there may not be any costs charged by the new lender, your existing lender might charge fees to discharge your loan. There are also government fees charged every time you change lenders.
The most common fees charged are for the discharge of mortgage and registration of mortgage. These fees vary depending on which state the property is located in.
Are There Any Discharge Costs From Your Existing Lender?
Almost every lender will charge a discharge fee, and the amount can range anywhere from $200 through to over $1,000. These fees are generally included in the loan amount and not required to be paid up front, but you should factor them in as part of the overall costs.
You can’t avoid paying fees but choosing a lender that offers a cash rebate to cover these expenses may be an option. Most of the competitive lenders offer between $1200 and $1500 cashback.
What Are The Tax Implications Of Refinancing Your Home Loan?
If you are refinancing an investment property, you might enjoy tax privileges.
In the first five years of owning the property, you can claim borrowing expenses back. If you sell or refinance the property within five years, you can claim the remaining tax deduction.
For investment properties, you can also claim deductions for the exit fees and penalties and the initial borrowing costs.
Understanding Comparison Rate
A comparison rate is a true reflection of your interest rate once you include things such as annual fees and setup costs. Failing to take into account all applicable costs is a common mistake by borrowers.
For example, the lender/broker offers a rate of 3.75%, but after adding the annual fee and any other ongoing fees the annual interest repayments, the actual rate (comparison rate) is 4.16%. This is one of the most critical things to check before deciding on which product to proceed with.
How Often Should You Refinance?
Consider refinancing when your current loan becomes too expensive. This might happen if there is a change in your circumstances, such as your employment or outgoings. It’s a good idea to carry out regular checks on your finances to make sure you’re getting the base deal for your needs.
When Shouldn’t You Refinance Your Mortgage?
Refinancing is a great option, but there are cases when it may not be advisable. Changing lenders is not advisable in these cases:
- You have an exceptional lender who offers the most reasonable terms.
- You have been paying the loan for 15 to 20 years.
- Penalty or exit fees are too expensive.
Getting Started For Mortgage Refinancing
What Documents Do You Need To Apply?
There is a common myth that there is a mountain of paperwork to provide when refinancing your home loan. This deters a lot of people from proceeding with the process. With the right advice, the process is easy and your broker will advise you of all the paperwork you will need to prepare. These documents usually include:
- Two most recent pay slips
- Completed application form
- Driver’s License (sometimes lenders requires a second form of ID)
- Transaction history of the existing home loan or existing debts you intend to consolidate
- Rates Notice
- Contract of sale (if purchasing a new property)
- Rental statement (if using the rental income towards repayments on your new loan)
Self Employed applicants will need to provide either one or two most recent set of accounts.
Finding The Best Refinanced Loan Option
With so many products available and so many competing lenders, it can seem a daunting task to select the right product. At Find a Better Rate, we have access to more than 30 lenders providing some of Australia’s leading home loan products. We will help you compare products and select the right loan.
Getting More Info About Refinancing
If you want to find out how you can benefit from home loan refinancing, schedule a consultation with one of our mortgage brokers today. We can guide you through all the available options and find the one that meets all your needs.
Talk To Us
As you can see, there are many things to consider when looking at a refinance mortgage. Choosing the wrong product can have serious consequences for your finances.
Our free service will save you time and stress and will ensure that you are able to make an informed choice. Your lender pays us via commissions at no extra costs to you. Our brokers will compare the whole range of products and provide expert and impartial advice. We will always provide you with written details about the fees we receive from the lender.
Contact us today to start saving!
Disclaimer: Information provided herein on how to refinance a home loan are for references only. Please contact us for a more detailed analysis of your situation and provide us with the opportunity to advise you about your home loan refinancing needs.
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