Refinance your home loan in 6 easy steps
Refinancing your home loan can be a smart move, especially if your current loan isn’t working for you or you feel you’re paying more than you should be. Below, we outline the main steps involved and some key questions you should ask.
1. Know what you’re looking for
The first step is to ask yourself why you want to refinance.
You might feel that your home loan lacks flexibility. Or you might be approaching the end of a fixed rate term and the options from your current lender aren’t particularly attractive. Or it might just be a matter of wanting a lower interest rate.
Whatever the case, having a clear idea of what you want out of your home loan will help you narrow your search to those that are most likely to suit your circumstances.
2. Ask your lender for a better deal
Before you commit to switching, it’s worth speaking with your current lender to see if they’re willing to give you a better deal. Depending on what you’re after, it might be possible to make the accommodations necessary to keep you on board.
If you’re looking to lower your interest rate, it pays to familiarise yourself with the rates offered by competitors. Knowing the rates your current lender offers to new customers can also be a good bargaining chip.
When you call up your lender, present your findings and ask if they are willing to match them. They might offer a small discount to placate you, but if it falls short of what you’re after, keep pressing.
3. Compare your options
If you’re unable to negotiate a better deal with your lender, it’s time to get serious about switching. For an idea of what’s out there, visit our home loans comparison page, where you’ll be able to filter loans by rate and type.
Remember, the interest rate is just one component of a home loan (albeit a very important one). You should also consider things like the reputation of the lender, the quality of customer service, and the features on offer.
Home loan features you may be interested in include:
Extra repayments: The ability to make extra repayments can shorten the life of your loan and ultimately save you money on interest. Use our extra repayments calculator to work out how much you could save by making extra contributions.
Redraw facility: This allows you to retrieve any extra payments you’ve made on your loan, which can be useful if you find yourself in a pinch financially. Just make sure not to redraw on your loan too often or you’ll undo the progress you’ve made over time.
Offset account: This is an account linked to your mortgage that functions like a regular bank account, with the added benefit of reducing the amount of interest you pay on your loan.
Repayment holiday: If you need some time to focus on other commitments, the ability to temporarily pause your home loan repayments can come in handy. Just keep in mind that adjustments will be made to your loan term or your repayment amount once the holiday ends.
Split loan: This divides your home loan into two accounts, one with a fixed rate and one with a variable rate. Splitting your loan allows you to access many of the features associated with a variable rate while also benefiting from the certainty of a fixed rate.
4. Weigh up the costs
Refinancing your home loan can help you save interest in the long run, but you might still encounter some costs along the way. These can include:
Break costs: If you’re currently on a fixed interest rate, you’ll likely have to pay a break cost. The amount will depend on a few things, such as how long you’ve had the loan and whether interest rates have changed since you signed up.
Discharge fee: This is paid to your current mortgage lender to cover the administration costs associated with moving the mortgage title deed over to the new lender. Discharge fees are usually no more than a few hundred dollars.
Upfront fees: You may also be charged a range of fees by your new lender, including application, legal, valuation and settlement fees.
Lenders mortgage insurance: If you had to pay LMI on your current mortgage and still have a loan to value ratio below 80%, your new lender will require you to purchase LMI again.
Once you’ve settled on a home loan that you believe suits your needs, it’s time to apply. Depending on the lender, you might do this at a branch, over the phone, or online. At this stage, you’ll be asked to provide certain information and supporting documents, such as:
- Your name, age, address, contact details, and proof of identity
- Employment history
- Family details (e.g. relationship status and number of dependents)
- Evidence of income (e.g. pay slips and income tax returns)
- Evidence of living expenses (e.g. bank statements and bills; you might also be asked to consider any changes you would make if your home loan is approved)
- Evidence of any liabilities (e.g. credit card and current loan statements)
- Evidence of assets (e.g. other properties and investments).
If your application is successful, your new lender will send you a contract for a home loan. Before you sign, it’s a good idea to have the contract reviewed and explained to you by an independent legal professional.
Settlement occurs once the lender you’re refinancing to receives the signed contract and your new loan is used to pay off your old one.
You will also need to submit a Discharge of Mortgage form with your previous lender. This will be sent to the Land Titles Office in your state or territory and is necessary to close your old home loan account.
Once settlement is complete, your new lender should send you an information kit outlining the terms of your mortgage. If all the details are correct, you can now set up your account and begin paying off your new loan.
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