Home Loan Refinancing in Australia

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Contents

    What is home loan refinancing?

    As a homeowner, your mortgage is likely to be one of your biggest expenses each month. That’s why it’s important to pay attention to your home financing and not get too complacent. This guide will take you through the home loan refinance process from start to finish and give you key pieces of advice along the way. This way, you can know exactly what you’re getting into and what you can stand to gain.

    Home loan refinancing is a process where you take out a new home loan and use it to pay off some or all of your existing home loan. The goal is to get out of a mortgage that’s not working out for you and get access to a lender who better suits your needs. For instance, homeowners may want to switch between variable interest rates and fixed interest rates based on the current market conditions.

    The cost to refinance can be significant, but if done right, those costs will be outweighed many times over by your future savings. The main thing is to look closely at the refinance rates and compare them in-detail with your current rates.

    What are the benefits of getting a home loan refinanced?

    If you remember how complicated it was to buy a house in the first place, you might be discouraged from having to deal with lenders and loan applications all over again. But have no fear: refinancing your home loan is easier than you think, and there are quite a few short and long-term benefits.

    • Better interest rates If your current loan has an interest rate that’s worse than the going market rate, it could be a good time to refinance and reduce your payments, which could save you thousands.

    • Access to more funds If you’ve already repaid a substantial amount of your mortgage, you have home equity which can be used to borrow money for renovations, investments, or vehicle purchases.

    • Additional mortgage features A new lender could be appealing if they offer offset accounts, redraw facilities, or additional repayment options. You should also consider your loan term and repayment frequency.

    • Debt consolidation If you’re currently carrying additional debt with a heavy interest rate, like a car loan, you could refinance those debts and combine everything into a new loan with one repayment.

    • Cashback offers Some lenders have cash incentives for switching your home loan. Be sure that the loan has quality substance: cash gets spent fast, but you could be on the hook for that loan for a while.

    • Avoiding high revert rates Often, fixed-rate and introductory-period loans have low rates that later jump way up to a higher rate. By refinancing early, you can enjoy the low rate and then find a new lender.

    What are the costs of getting your mortgage refinanced?

    To ensure that getting your mortgage refinanced is worth it, it helps to learn about the potential expenses in advance. There are a few different fees that you may run into, depending on the terms and conditions of the old and new mortgages. It’s important to ask your lender about these details ahead of time so that you avoid unpleasant surprises.

    • Loan discharge fees: Also known as settlement fees, these are applied at the end of a loan. These can apply for customers looking to refinance, as well as customers who are paying off their existing loan in full.

    • Fixed rate break costs: For loans with a fixed interest rate, a break fee may be required if you refinance before the end of the term. The fee will depend on the outstanding balance and the time left in the term of the loan.

    • Lenders Mortgage Insurance: If you currently own less than 20% of the equity in your property, your new lender might require LMI as a form of protection against default. Lenders Mortgage Insurance cannot be transferred from your old loan.

    • New loan fees: Your new lender may charge you for some of the loan setup costs, including the property valuation fee, the loan application fee, governmental registration fees, and stamp duties, depending on your state.

    What are the steps for getting my home loan refinanced?

    Getting a roadmap of the process ahead will be extremely useful in making you prepared. By planning in advance, you can increase the chances of getting the best home loan refinance offer available to you.

    1. Decide on your refinancing goals:

      Dig into the details of your current loan, what your expenses are, and what features you have access to. Think about which aspects you would like changed and what your top priorities are, whether it be cost, flexibility, or something else.

    2. Shop around for a new lender:

      There are hundreds of places to get a new home loan, but not all of them will be right for you. You can use online comparison pages or even speak with a mortgage broker depending on the level of support that you need.

    3. Speak to your current lender:

      Once you’ve done your research, try negotiating with your current lender for a better interest rate. This is also a good time to learn about possible refinancing fees. See if you can get competitive home loan refinance offers from them.

    4. Submit your new application:

      If you’ve decided you want to switch lenders, you can proceed to the application. You’ll need documentation of your employment, financial paperwork for your income/expenses/debt, and details of the property. There’ll also likely be a credit check.

    5. Arrange property valuation and inspections:

      Before agreeing to a home loan, your new lender will want an official valuation of the real estate property. There may also be other building inspections and financial investigations to assess any possible risks to the lender.

    6. Set up the settlement:

      After the application gets approved and all the relevant checks are completed, you can settle the new loan. Your new lender will then pay off the previous loan and assume ownership of the property. Congratulations, you refinanced your home!

    What is the best home loan refinance way with bad credit?

    Getting a good home loan can be extra challenging for those with bad credit, but there are still several options available. Many people with not-great credit have been able to access affordable home financing.

    • Ask your current lender: If you can avoid having to enter the loan market with bad credit, you probably should. Your current lender has already taken a chance on you, and if they see a pattern of financial responsibility, they may be willing to offer you a reduced rate or other flexible terms.
    • Order a copy of your credit file: Before applying for a new loan, you should take a close look at your overall credit history—not just your current credit score. This way, you’ll see what a potential lender will see: credit limits, number of open accounts, recent late payments, etc.
    • Organise your current debt: See what debts you currently have and which ones would be the easiest to settle. If you’re having recurring trouble meeting credit card or utility payments, you can always ask about payment plans or other ways of avoiding compounding late fees.
    • Consolidate debt into your mortgage: One of the most popular reasons to do a mortgage refinance is debt consolidation. Rather than juggling different loans and different interest rates, you could be making a single payment with a lower interest rate than those separate loans.
    • Work with a mortgage broker: Licensed mortgage brokers can help you find specialised lenders who are experts in bad credit home finance. These lenders will be more accommodating of difficult financial circumstances that may have led to your poor credit history.

    Home loan refinancing FAQ

    How long does it take to do home loan refinance?
    The main factor here is your lender and how intensive their application process is. Some lenders could approve you in just a few days, while others may take up to two months. This is an important aspect to consider when comparing prospective lenders.
    How much home equity do I need in order to do a mortgage refinance?
    For your original home loan, you almost certainly needed a cash deposit, but now you’ll be using your home equity. The rule of thumb is that you should own at least 20% of the equity—or in other words, you’ve paid off at least 20% of the value. This helps you avoid the potential expense of Lenders Mortgage Insurance.
    What’s the maximum amount of times I can do a home loan refinance?
    There is no specified limit on refinancing, but remember that the cost to refinance your home may start to stack up. Each new loan involves break fees and new application fees, and you also don’t want too many hard credit checks dinging your credit score. However, refinancing multiple times is fine if done strategically.

    Main strategies for getting the best home loan refinance offers

    With the real estate market in constant flux, many Australians are looking at home loan refinance rates to see how they can save on their mortgage. The process can be complicated and can cost some money upfront, but there are some great advantages to be had from getting refinancing done the right way. Your goal should be to decide exactly what you want from your mortgage and then figure out whether your current lender is the right match for these needs.