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Refinance Guide

When it comes to home loans there are five key areas you need to consider:

Refinance Guide

If you’ve got a home loan, you may have come across the terms ‘refinancing’ or ‘re-mortgaging’. In essence, they refer to the process of switching home loans for the purpose of saving money, increasing flexibility, adding to the loan amount or consolidating debts.

Refinancing has become particularly popular in a low interest rate world because the variance between high interest rate lenders and low interest rate lenders is significant, according to RateCity data. What does this mean? Say a borrower had a $600,000 home loan with a rate of 4.5 per cent over 30 years. If they refinanced to a 3.9 per cent rate, they would stand to save $210 a month.

One of the first questions borrowers who are considering refinancing have is "should I refinance?"

There are reasons to refinance, as well as reasons not to refinance, depending on a range of factors, including how far you are into your loan term, your interest rate, fees and personal circumstances. This guide explains the pertinent considerations. 


Why people refinance

  • To reduce their loan costs – refinancing can save borrowers a huge amount of money on a monthly basis, but also over the life of a loan. The actual amount saved will depend on a number of variables, including the size of the loan, the rate discount and any ongoing and administration fees. If your goal is to reduce your monthly repayments you can user RateCity mortgage repayment calculator to see how much you could save by refinancing every month
  • To pay their loan quicker -switching to a new home loan with a lower interest rate, while maintaining the same amount of monthly repayments could save you thousands (and even tens of thousands) in interest repayments. It will also allow you to complete your mortgage repayment a few years sooner
  • To increase flexibility or features – When you first applied for your home loan, you may have been driven other factors than those that drive you now. Perhaps you were in a lower paying job or a job that paid you monthly or maybe you have since come into an inheritance. If you were simply looking for the lowest rate at the time, you may have missed out on a number of popular features lenders now provide, including offset accounts, redraw facilities and the ability to make extra repayments. If you can afford to pay down your loan quicker, then these functions may save you over the longer term.
  • To free up some equity – If you’ve paid off a chunk of your home loan, you may be eligible to extend your borrowing amount with a line of credit. The benefit here is that you could be paying a lower amount of interest via your home loan than you would if you had a credit card. Taking on additional debt always carries risks though, so before you go down this path, be sure to speak to a professional, such as a financial adviser, about the pros and cons for your personal situation.
  • To consolidate debts – Some borrowers have multiple streams of debt. They may have multiple housing loans, personal loans and credit card debt. By syphoning those debts into the one account, they may be in a position to save, depending on the level of debt they have.
  • To take advantage of incentives – From time to time, lenders offer incentives to try and hook new borrowers. These incentives can be quite generous and range from cashback offers, to holidays, to new cars. Before you refinance to take advantage of an incentive, it’s important to look at the fine print and make sure the interest rate and fees for the new loan are reasonable and aligned to your financial goals. It’s worth using a repayment calculator to determine how much more you’ll pay monthly, yearly and over the life of the loan, if your interest rate is higher than your current rate.
  • To find a lender that treats them better – It’s not unusual for borrowers to claim they’ve felt neglected by their lender. Perhaps that means not getting a call back when they request it, poor customer service at a branch, poor notification of changes or not passing on interest rate reductions. Feeling disenchanted with a lender is a common reason for refinancing for many Australians. It’s important to make sure before you switch loans that your new lender is an improvement on the old one. For many that means making sure communication is strong and interest rates and fees remain low.

CASE STUDY -Mark chose a new bank and saved almost $9000

Mark* opened his first bank account when he was six years old, so naturally when it became time to get a home loan when he was 32, he didn’t think twice about banking with the lender he knew. After all, he trusted the big-name bank, there were few fees associated and the bank did much of the heavy lifting when it came to early paperwork.

Five years into his 30-year loan term, Mark saw several news headlines that indicated interest rates were at record lows. To Mark’s dismay, his lender had only passed on one of two Reserve Bank interest rate cuts, which meant his rate was 0.75 per cent higher than those offered for comparable loans. To add to matters, he was paying an annual fee of $120, when many lenders did not have annual fees.

Mark did the calculations and discovered he stood to save $3000 on fees and $6450 on the interest rate discount if he switched loans. He spoke to his current lender about discharge fees and discovered he would have to pay $350, plus $100 to his new lender in upfront costs, which he considered a small cost compared to the fees he was paying for account keeping. He switched loans and is using the money he’s saved this year for a weekend away.

*Name has been changed.

Some of the top refinancing home loans

Why people do not refinance

The reasons borrowers don’t refinance

  • The time/effort involved – The main reason people don’t refinance is because they can’t be bothered, due to the perceived effort for the amount they’ll save. A RateCity survey found almost 40 per cent of borrowers cite this as a barrier.
    • The chance the new lender will be worse than the old one – Any change is a risk and for almost a quarter of borrowers, the risk the new lender won’t be any better is enough of a reason for them to stay put.
      • The hassle of unlinking bundled products – For those who have several bank products, including credit cards, transaction accounts and term deposits, linked to the one lender, it can be a daunting task to either switch them all over to the new lender or to set up a new direct debit to your mortgage. However, many smaller lenders recognise this and have upped the ante on their customer service for bundled products. It can be as simple as filling out one form with your new lender and getting them to take care of a lot of the heavy lifting. It’s worth checking before you sign up to any new loan what sort of customer service the lender provides and how they handle mortgage transactions.
        • The associated costs – Surveyed home owners cited the switching costs as one of their major deterrents to moving lenders. Their rationale is that the cost of moving would outweigh the benefits they receive. However, in many cases, that’s not correct. ‘Exit costs’ were banned in 2011, which means borrowers now only have to worry about a discharge fee and the upfront fee of their new loan. While discharge fees tend to hover around the $200-$300 mark, the average upfront costs from RateCity’s database of loans is $396. However there are more than 1200 loans on RateCity.com.au with no upfront fees at all.

        Refinancing traps

        Given that refinancing isn't always a straightforward process, there are certain traps borrowers can fall into if they are not wary.

        Here are some of the top offenders:

        1. Adding smaller debts to your loan - this can stretch out the loan term by years and add unnecessary interest.

        2. Borrowing more than you need -why would borrowers ask for more than they need? You'd be surprised how tempting it can be, but over the long term it can see borrowers end up in debt traps.

        3. Falling for honeymoon rates- Honeymoon rates sound great at the beginning, but watch for a high revert rate.

        4. Refinancing to a longer loan term- Your repayments will be lower to start, but you won't pay off the loan any time soon.

        5. Accepting upfront fees instead of negotiating - This is one of the biggest mistakes borrowers make and it can make refinancing cost prohibitive.

        When to refinance

        While there is no ideal time of year to refinance, reduced interest rates tend to follow a Reserve Bank interest rate cut. For example, in 2016, several loans listed on RateCity dropped their rates around May. Some home loan specials also tend to appear around the beginning of a new year.

        Given the paperwork involved in switching loans, some borrowers like to time their refinancing around holidays or long weekends.

        How much does it cost to refinance?

        The costs you may encounter when refinancing are as follows:

        1. Discharge fees (average: $250) – when you terminate your loan, you will likely have to pay a discharge fee to cover the paperwork your old lender has to compile.
        2. Upfront costs (average: $400) – these include establishment fees, valuation and settlement costs.
        3. Break fees - if your current home loan is on a fixed rate you should contact your lender first and find out the break fee associated with switching

        When considering switch cost it is important to examine it with respect to the savings. That means you should ask yourself: 

        "How long will it take me to return the switch cost and what will be my total saving in the first year?"

        TIP

        Many lenders will cover your discharge cost and forfeit the up front cost to earn your business. Its worth negotiating those fees before signing the loan contract


        Discharge fee

        The Federal Government banned exit fees in 2011, removing one of the biggest barriers to taking switching home loan providers. Lenders can still legally charge a discharge fee, which is payable when you come to the end of your home loan, however these fees are relatively small at an average of $304 while 134 products don’t have them at all.

        Break fee

        Break fees are charged when a customer terminates a fixed-rate mortgage. The amount is determined at the time you decide to break the loan and is based on how much your bank stands to lose by you breaking the contract. As a general rule, the more the variable rate has dropped, the higher the fee will be.

        Upfront fee

        An ‘upfront’ or ‘application’ fee is a one-off expense you are charged by your bank when you take out a loan. The average start-up fee is around $600 however there are over 1,000 loans on the market with none at all. If the loan you want does include an application fee, try and negotiate to have it waived. You’ll be surprised what your bank agrees to when they want your business.


        How much time does it take to refinance?

        There are two refinancing paths:
        1. Fast track: lenders offering a fast refinancing track can complete the entire process for you within 3 days
        2. Standard process: the standard refinancing process usually takes between two to four weeks. This process does not require more effort on your behalf it just structured differently. 

        Those are the key actions on your part trhoughout the refinacning process:

        1. Choose your loan (Estimate: 15 mins – 1 hour)

        Once you’ve committed to the refinancing process, use RateCity.com.au to locate your ideal loan based on your personal set of criteria.

        2. Make contact with your new prospective lender (Estimate: 30 mins to 1 hour)

        Once you’ve chosen the new loan you wish to move to, it’s time to make contact with the lender to discuss your desires and suitability. Most lenders can be contacted by phone or through the chat function on their site, where they will often request to call you at a convenient time. In your consultation, they will ask you about your reasons for refinancing, your property, your loan amount, your equity, your suburb, your employment details and potentially your future plans for the property. The reason they ask these questions is to ascertain whether you’re a suitable candidate from their perspective for finance.

        It’s important at this stage to confirm how your lender deals with employment loss, default and whether they offer repayment holidays. It’s also a good time to talk about fees you will be charged at the onset and termination of the loan, as well as any ongoing charges.

        3. Start the application process (Your time commitment estimate: 1 hour- 8 hours depending on personal finance situation)

        If your new prospective lender has deemed you a suitable candidate and you’ve deemed them a suitable lender, you can proceed to the next stage of preparing your paperwork. The documents you will need include, but may not be limited to: identification details, your past loan statements, employment letters and pay slips. Some lenders require this paperwork to be delivered in person and sighted by a Justice of the Peace, others accept documents scanned online, others accept documents by post. Confirm their desired methods and then send them off.

        4. Get your valuation (Your time commitment estimate: 1- 3 hours to find a suitable time and minimal property preparations)

        One of the last suitability checks your lender will require is a valuation of your property. This is primarily done to ensure you have enough equity to secure the loan. Sometimes lenders will also want to ensure your geographical region is increasing in value in case they have to repossess and sell your property. Essentially they want to know they can recoup their investment.

        How the property will actually be valued varies by lender. Some lenders will want someone to look inside, others will be comfortable driving by, others can do the evaluation remotely. It’s worth noting many borrowers get their first valuation free, but that’s usually redeemed when you first settle. You will likely be charged a valuation fee when you refinance, which is usually between $100 and $400.

        If the valuation determines you have less than 20 per cent equity, you may be required to pay lenders’ mortgage insurance on your new loan.

        5. Receive your approval or rejection from lender (Your time commitment estimate: N/A)

        Within a few hours to a few days, your prospective lender will be in touch to let you know the status of your application. If you are approved, you proceed to the next stage of transferring the title from the old lender to the new lender.

        If you are rejected, it’s worth getting back in touch with the lender to see what happens next. If you have been rejected because you do not have enough equity in your property, you may be able to pay additional insurance to secure the loan or secure it against a different type of equity. Some lenders also have valuation appeal processes.

        6. Transfer your loan (Your time commitment estimate: 30 mins to 1 hour)

        After your loan has been approved, you will need to sign some discharge paperwork and then your existing mortgage is transferred to your new lender. This process can take up to two weeks. At this stage, you may pay a discharge fee.

        7. Settlement of your new loan (Your time commitment estimate: 30 mins to 1 hour)

        Your final stage of refinancing, the settlement involves paying your upfront fees and setting up your mortgage direct debits.

        NOTE: Your time commitment estimate is how long our survey results indicate how many hours of your time will be taken up with each stage. It does not include wait times you may incur as your lender assesses your application.  


        Fast track vs. standard track

        What is the Fast Track refinancing process?

        The Fast Track refinancing process is a way of having your loan switched to a new lender in a total of three days. It is offered by lenders as a way of reducing the time between you making the decision to refinance and them closing the deal. The benefit for your new lender is that this gives your old lender less time to offer you incentives to stay. The benefit for you as a customer is that you can have the process completed in a matter of days rather than worrying about it for an extended period of time.


        What is the standard refinancing process?

        The standard refinancing process is when you complete the initial steps to apply for a new loan and then have to wait for your new lender to contact your current lender and arrange the terms of transferring the debt. This can take weeks during which time you will have to wait until your new loan is approved. As a result, the whole process usually takes between 2-4 weeks.

        mini-howlongdoesittaketorefinance

        Suitability talk

        A 20-30 minutes talk where the new lender will talk to you (usually over the phone) to assess your employment status, your finance and the overall suitability between you and the lender.

        Identity documentation

        You will be required to send to the new lender (by mail or online- depending on the lender) documents that verify your identity, your income and your overall financial status.

        Property Valuation

        Before the new lender approves your loan, the lender will assess the value of your property, often to ensure your borrowing amount is less than 80% of the property value.

        • Remote valuation: Some lenders will do a remote assessment using digital means. This allows the lender to conclude the valuation process within hours. On the fast track option lenders will then be able to pay off your old loan and issue a new one within 72 hours
        • Physical valuation: Other lenders will send a professional to assess the value of your property which can slightly prolong the process as the new lender will need to coordinate a suitable valuation date with you. When this is done a valuation fee will need to be paid. Some lender carry that cost while other will charge you a valuation fee. A valuation fee by most will be between $200 to $500.

        Loan approval

        Following a successful valuation the lender will approve your loan. On the fast tracking this can be done within 72 hours while on the standard process it can take between 9-14 days. The lender will require you to sign and send the new loan documents. Some lenders allow you to do it online while other require fax/mail communication.

        Please Note

        • Fast track will allow you to get your old home loan paid and new home loan issued within 72 hours when no physical property valuation is required.
        • Loan approval through standard refinancing process usually takes between 9-14 days. However in some cases this could take longer.

        Title insurance

        Once you send back your loan documentation the new lender will pay the old lender your outstanding mortgage amount (plus an amount to cover setup and discharge fees). From that moment your old loan is paid and a new loan is set up. From your standpoint at that stage (72 hours in*) the process is done. However the property is still under the ownership of the old lender. It takes up to two weeks for the old lender to change the property ownership to the new lender. The title insurance protects the new lender for instances where for some reason the ownership of the property has not been transferred. Some lenders carry the title insurance cost while others charge you a title insurance fee. This fee is quite expensive and can range between $500 to $3000.

        What is the process of switching mortgages?

        The precise process and timeline you will follow when you switch loans varies depending on the lender you choose, your past lender, the ease of your valuation and how readily available your documentation and personal finances are. However, it should follow a similar format to this:

        1. Define your refinance goal: reduce your monthly repayment, pay your loan quicker, get cash out of the property, consolidate depth. Based on the goal defined the information you will need to source and your considerations will change.

        2. Find your loan details: in order to calculate accuretly how much you can save by switching it is important you will find out five things:

        1. Your current interest rate
        2. Your outstanding mortgage balance
        3. Your monthly repayment
        4. The value of your property
        5. Discharge fee

        3. Compare to alternatives: use solutions such as RateCity mortgage repayment calculator to compare your current loan to market alternatives.

        4. Switch cost: check the upfront fees on relevant loans and check if the new lender is willing to cover your discharge fee and/or forfiet the upfront fee

        5. Calculate break even point: compare your monthly savings agaisnt the switch cost and calculate the amount of time it will take to return the switch cost and start saving

        6. Take a decision: decide if you want to switch. If yes you can choose to use a mortgage broker and apply online via a website- such as RateCity

        refinancingprocess-infographic-v22


        Define your goal

        If your current loan is on a variable rate our switch calculator will automatically calculate for you the following:

        1. Discharge fee: The cost imposed by your old lender for closing your loan (usually between $160-$350);
        2. Break even point: The amount of time from the moment you switch until you covered the discharge fee;
        3. Net saving value: The amount of money you will save one year after the switch and 5 years after the switch after deducting the switch cost.

        If you areon a fixed rate, you should contact yourlender and check related break fees before switching.

        Source loan and property information

        Before you go ahead with the refinancing process you need to gather together the relevant information about your current home loan and property. This includes knowing what interest rate you are currently sitting on; especially if you are looking to refinance to lower your monthly repayments. You can find this information by looking at your home loan statement which will either be mailed to you or available through internet banking. If in doubt, you can always call your lender and ask them to look up your rate.

        It is also essential to have an idea as to the current value of your property. Real estate sites like Domain.com.au and Realestate.com.au will provide you with an estimate of your property’s value but for a more accurate estimate you can opt for a private valuation. When you apply for a loan the bank will complete their own valuation of your property but it is good to have an idea of what your property is worth entering the process.

        Compare to alternatives

        Before you go down the path of switching lenders, it's important to consider all of the alternatives available for you. Switching home loans may not be for you and there may be a better option for your goal and personal situation.

        Here are some of the alternatives to investigate:

        • Staying with your lender but asking for a discount on your interest rate;
        • Some lenders offer re-amortization or re-casting, whereby you can pay off a lump sum and reset your interest rate and mortgage repayments; it's worth thinking about whether you could save more by putting the money you would spend switching into paying down your principal.

        Calculate switch cost

        After investigating the other options, the next stage in the journey is to compare the cost of the alternatives to the switch cost.

        The switch cost comprises the following components:

        1. Your loan discharge costs - these are the costs you'll incur from lender one when you transfer your loan.

        2. Your break fee if you're on a fixed loan - because a fixed loan is essentially a contract for a set period of time, you may be charged a big fee.

        3. Your upfront costs for the new loan - these include loan establishment fees.

        Calculate break even

        Calculate your break even point based on your refinancing goal

        As an example lets say your current mortgage is $600,000 on a 5 per centinterest rate and you are left with 20 years of repayments. That meansyour current monthly repayment would be$3960. If you will refinance to a home loan with a 3.64 per cent interest rate you could reduce your monthly repayment to $3520. Here is the break even and saving table:

        Borrowing amount $600,000
        Old loan term 20 Years
        New loan term 20 Years
        Old interest rate 5%
        New interest rate 3.64%
        Old monthly repayment $3,960
        New monthly repayment $3,523
        Monthly saving $437
        Switch cost $1000
        Time to break even 65 Days
        Total saving over 12 months $3,807
        Total saving over 5 years $24,783

        PAY DOWN LOAN QUICKER

        Another reason borrowers refinance is to pay off their loan at a quicker pace. Often this results from getting a pay rise, a bonus or an inheritance. In this scenario, the aim is to save themselves money by paying a higher portion of principal, as opposed to interest. As the below table shows, the repayment rate remains the same, more of the repayments are going towards paying off the initial amount borrowed.

        Borrowing amount $600,000
        Old loan term 20 Years
        New loan term 16.9 Years
        Old interest rate 5%
        New interest rate 3.64%
        Old monthly repayment $3,960
        New monthly repayment $3,960
        Monthly saving (in interest 5yr average) $688
        Switch cost $1000
        Time to break even 45 Days
        Total saving over 12 months $6,500
        Total saving over 5 years $39,612

        Reduce monthly repayment

        How long does it take to recoup the switching costs?

        RateCity analysis found it took borrowers on average between four and six months to recoup their switching costs. If you have only 5 years left on your loan, that may seem significant, but if you have 10 or more years, the impact may become negligible.

        What do I need to refinance?

        - Past loan statements;

        - Employment details & payslips;

        - Identification details- passport, driver's licence.

        CASE STUDY – Sarah and James are too time poor to refinance

        Sarah and James both work in economics and have a comprehensive understanding of interest rates and how they impact repayments. Therefore, they were both concerned when they realised their lender had only passed on half of the recent two RBA interest rate cuts. They knew had their lender passed on the full rate cuts, they would have been better off by about $177 a month on a $600,000 mortgage. However, for Sarah and James, it was a question of time versus money. They each work 50 hours a week and spend their weekends building their small business. In Sarah’s opinion, it didn’t make sense to sacrifice revenue from their side business for what could be a commensurate saving. James got in touch with a mortgage broker and discovered the process could be streamlined and he and Sarah would only have to provide two documents and sign two forms, while still saving about $100 a month based on the loans they qualified for. They went with the broker path.

        CASE STUDY – Josie’s application is declined

        Josie* bought her first apartment in Sydney’s Western Suburbs in 2014 after securing a good deal from a mortgage broker. Her apartment was valued at $220,000 at the time of purchase and she was able to come up with a deposit of $11,000 for an owner-occupier loan. Earlier this year, Josie started to look for ways to reduce her mortgage payments and realised her interest rate of 5.25 per cent was well above the market average. She saw another lender was offering owner-occupier home loans for 3.4 per cent. The new loan would save her more than $200 a month.

        Josie met with the new lender about the loan and provided the relevant documentation. Given that she lives in a high density area, her new lender required an onsite valuation, where they assessed the land size, the off-street parking and the number of bedrooms.

        Unfortunately, following the valuation, Josie’s application was declined. Josie had not built enough equity in her property to ensure the lender could recoup their loan costs in the scenario there was market correction and the property needed to be repossessed and resold. The lender gave Josie the following options:

        1. Take out lenders’ mortgage insurance – given that Josie has less than 20 per cent equity and regulations have changed around loan to valuation ratios, the lender required further protection. For a few thousand dollars, Josie could elect to buy lenders’ mortgage insurance.

        2. Wait a little bit longer before refinancing to build up equity – even a couple of years could see Josie hit the LVR requirements.

        3. Dispute the valuation report – if Josie felt the valuation underestimated the property’s value, she could request a second valuation, but this could see her pay a second fee. Ultimately, she chose to wait an extra two years before refinancing.

        *Name has been changed.

        Make a decision

        Finally, it's time to make a decision about whether refinancing is right for you or not. You'll need the following information to assist you:

        • Your switching goal;
        • The costs of new, prospective home loans;
        • Your break costs;
        • Your break even point - how long it will take you to recoup the switch cost.

        With the above to aid you, the decision should become fairly clear cut.


        Should I worry about smaller lenders?

        Should you worry about smaller lenders?

        A quick comparison will reveal some of Australia’s smallest lenders have more competitive interest rates than the Big Four banks. Sometimes the disparity for comparable loans is up to a whole percentage point. One of the reasons small lenders are able to offer cheaper rates is because their overheads are lower; some of them are online only, some have limited branches and others have less staff than some of their big bank competitors.

        For borrowers, this raises two questions. The first is – am I happy to sacrifice the customer service and branch access I may get from a larger bank for a cheaper rate? Ultimately that comes down to individual preference. Many borrowers would prefer to be able to step into a branch when they need to and are happy to pay a little more for the privilege.

        The second question is – can I trust a smaller lender?

        If you’re worried about whether smaller institutions have looser standards, the good news is small banks and building societies are bound by the Code of Banking Practice and Mutual Banking Code of Practice, which means they have the same rules around disclosing fees and charges and keeping your information secure.

        If a smaller lender collapses, your home loan will be transferred to another lender. Your loan amount will remain the same, but there will be a small administrative burden as you may have to change some of your passwords and banking details.

        More questions

        Top refinancing questions

        Is refinancing free?

        Refinancing, or switching loans, is not free, however many borrowers do it because of the potential to save money over time.

        The total cost of refinancing is estimated between $400 and $1200, based on the breadth of establishment, valuation, settlement and discharge fees from the existing loan. It will vary on a case by case basis, which means before refinancing, prudent borrowers should ask their prospective lender for a cost estimate and use a refinancing calculator to calculate how long it would take to recoup those costs.

        How often should I refinance?

        The frequency of refinancing is a personal choice, based on a number of variables for every individual. As such, there is no ideal equation for whether a borrower should refinance and how often they should refinance.

        RateCity data shows home owners with 30-year loan terms tend to refinance every four to five years on average.

        Does Australia have no cost refinancing?

        In your research on refinancing, you may have come across the term ‘no cost refinancing’. No cost refinancing sometimes occurs in the US and refers to a situation where the lender or the broker covers the associated costs, such as appraisal fees and settlement costs.

        Unfortunately, in Australia, we don’t really have no cost refinancing. The typical cost of refinancing is a few hundred dollars. However, it is still very popular, especially for borrowers with lengthy loan terms who can recoup those costs over a few months.

        Who should not refinance?

        Refinancing is certainly not for everyone; in fact for some borrowers, it will be not applicable or not appropriate.

        For example, the following cohorts would find little benefit in refinancing:

        • - Borrowers who are happy with their current rate, fees and level of debt;
        • - Borrowers in the final year of their loan term – This is because the costs of refinancing could outweigh the financial benefit;
        • - Borrowers with a small loan amount – The fees may be more than the actual loan;
        • - First home buyers – There is no reason to refinance when you’re buying for the first time, but it is a good time to search for a good deal so you don’t have to refinance.

        When is a good time to refinance?

        While there is no ideal time of year to refinance, reduced interest rates tend to follow a Reserve Bank interest rate cut. For example, in 2016, several loans listed on RateCity dropped their rates around May. Some home loan specials also tend to appear around the beginning of a new year.

        Given the paperwork involved in switching loans, some borrowers like to time their refinancing around holidays or long weekends.

        Can RateCity refinance for me?

        RateCity is a financial comparison website, which means while we provide you with a list of prospective loans and lenders, we can not refinance for you.

        If you wish to outsource the refinance process, a mortgage broker may be able to help.

        To read more about RateCity’s services, click here.

        Will my current lender try to persuade me not to switch?

        It is possible when you tell your current lender you have found a new lender with a better rate and/or better fees, your current lender will try to persuade you to stay. After all, your current lender is making money from your business over a long period of time and should want to retain that.

        Before you begin the refinancing process, it could be worth speaking to your current lender about whether they are offering flexibility on rates or fees. Lenders are well known to negotiate in order to keep customers. It’s best to go into this process armed with information about comparable loans with low rates or fees and similar features to the ones you currently have.

        Read More: How to negotiate a better deal

        Can I change jobs while I am refinancing my home loan?

        Given that the refinancing process can take up to a month from initial investigation to loan transfer, some borrowers could find it coincides with a recruitment process. If this is the case for you, you should definitely let your new lender know early in the application process. While it varies by lender, most lenders require refinancers to be in a permanent job with the same employer for at least 6 months before refinancing. Any interruption to this could reduce your chances of successfully completing the refinancing process.

        Can I refinance if I am on an employment contract?

        Some lenders will allow you to refinance if you are on an employment contract, as opposed to in an ongoing role. However, many lenders prefer you to be in an ongoing role because it reduces the risk that you will be unable to meet your repayments.

        Do I really need a valuation when I am refinancing?

        While some lenders do not require you to get a valuation before refinancing, the majority do. Rare exceptions may include when there’s been a recent estimate of a neighbouring property or a recent valuation of your property. In other cases, the lender will require a professional estimate of your property’s worth in order to establish how much they can safely lend you.

        On some occasions, the estimates are done remotely based on current knowledge of the geographical region, property size and condition. In other cases, someone will come to your home to value it.

        More burning questions

        Will I have to pay lenders' mortgage insurance twice?

        If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI). LMI protects the lender in the scenario you are unable to repay your loan or recoup your borrowing costs due to low equity. For some borrowers, it’s a charge of up to $30,000.

        If you had a deposit below 20 per cent and have held your property for less than five years, there is a chance you could have to pay LMI again, to your new lender, upon refinancing. Before completing the application, ask your prospective lender whether this is the case.

        Some borrowers delay refinancing to avoid paying LMI a second time because the financialbenefits do not outweigh the costs.

        Is there a limit to how many times I can refinance?

        There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

        However, if you refinance several times, it could impair your credit score. Lenders assess your credit score when you apply for new loans, so if you damage it, you may not be able to refinance if and when you really need to.

        Before refinancing multiple times, you should get a copy of your credit report and ensure it’s in good shape for future refinances.

        I have a poor credit rating. Am I still able to refinance?

        Some lenders still allow you to refinance if you have impaired credit. However, you may pay a slightly higher interest rate, higher fees or lenders’ mortgage insurance. When you take out a home loan, the lender wants a high level of probability that you will repay the loan. Reviewing your credit score is one of the key ways they ascertain that level of probability. If it is impaired, they seek another type of compensation in lieu of that high probability.

        I can't pick a loan. Should I apply to multiple lenders?

        You should only apply to one lender at a time because you could end up in a scenario where you are accepted by multiple lenders and expected to pay multiple application fees.

        If you are having trouble comparing two similar loans, it’s worth making a list of your needs and desires in a home loan and numbering them in order of importance. Then, contact the two lenders and give them a score on how they measure on each of your important criteria.

        Can I estimate the value of the property myself?

        Unfortunately, you won’t be able to estimate the value of your home yourself.

        Will I be paying two mortgages at once?

        No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

        If I don't like my new lender, can I go back to my previous lender?

        If you wish to return to your previous lender, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees.

        Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender on a number of areas, including fees, flexibility, customer service and interest rate.

        I am selling soon. Should I still consider refinancing?

        If you intend to sell in the next few months, it may not be the best time to refinance. That’s because the costs associated with refinancing, including upfront fees for the new loan and the old loan’s discharge fee, often take at least a couple of months to recover, even if you move to a loan with a better interest rate and lower fees.

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