Posted 22 Dec 16

The steps to refinancing your home loan

There are many different reasons why borrowers decide to refinance their home loans ranging from needing to borrow more money to coming to the end of a fixed term. Research shows that the average Australian home owner will refinance their mortgage every 4-5 years as their lifestyle and loan requirements change. If you’ve never completed the process before and don’t know where to start, this step-by-step guide will set you on the right path towards thousands of dollars in savings.

Work out how much you will save

The first step in deciding whether or not to refinance will be to use a home loan repayment calculator to see how much you could save each month by switching to a lower interest rate. While there are upfront fees involved in switching, in many cases, if there is still a substantial amount of time left on the loan term, there will be financial benefit to refinancing to a lower rate.

Compare home loans

Once you have determined that refinancing is the right move for you, the next step is to start comparing loans. This process should be comprehensive and not only involve looking at interest rates but also comparison rates, fees and features. You should also keep in mind that without a lot of equity built up in your current loan you may not be eligible to apply for the lowest rates on the market.

Contact the lender you are interested in 

Once you have narrowed down your search to a loan you are interested in, it is time to contact the lender to see what your chances of being approved are. During this initial contact the lender will ask you a series of questions to determine your eligibility for the loan. This is also your opportunity to find out as much as you can about the loan before you sign up. Ask about potential hidden costs and get them to send you as much information on the product as they have available.

Time to apply

After this contact, if everything goes smoothly, it will be time to fill out your application paper work. You will have to provide a lot of documentation during this part of the process so make sure you have things like proof of income on hand and ready to go. Before you reach the next stage of approval, your property will also have to be valued by your prospective lender which may incur a fee. Beware that if the property is valued, and the equity in your loan is less than 20 per cent of this value, you may have to pay lender’s mortgage insurance to have the loan approved.

Approval and discharge from old loan

After the valuation and application are completed and submitted to the lender you should receive your approval for your new home loan. How long it will be before you get notification of your approval will vary depending on the lender. Once you have been approved you will need to fill out the discharge paperwork from your old lender and potentially pay a discharge fee. If you are rejected at this stage in the process, it is advisable to get in touch with the lender to find out what went wrong so you can avoid it happening again.

Settlement

Settlement is the final stage of the refinancing process. Pay the upfront fees required by the new lender and set up any offset accounts or direct debits you would like to have attached to the loan. After this, it is only a matter of waiting to see your long term savings from the switch add up.
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