How long does it take to refinance?

While most people understand the benefits that refinancing can bring, they also know that the process will take time and effort on their part. But exactly how much time does it take to refinance?

If you’ve never gone through the process before, you may be curious as to how long the different steps take.  

Firstly, it is important to note that there are two stages to the refinancing process; before you refinance and the actual refinancing.

Before you refinance you need to have a clear idea of what your aim is. This will be what guides you through your decision making. It could be to lower your monthly repayment amount, consolidate debt or many other reasons. Establishing this aim is your first step.

After this, make sure you locate all the necessary info about your current loan and any relevant paperwork. Once you have gathered all the information you need you can start comparing alternative loans and pick out an option that suits your aim. With a specific product in mind you can then begin to calculate switch costs and determine the break even point of your loan switch.

Following this initial process is complete, and you have a loan in mind that you want to switch to, you will begin the second phase of the refinancing process. Below is a step by step guide to this process as well as an infographic that will visually guide you through the journey.

The total amount of time it takes to refinance once you begin the process can range from three days, for the Fast Track process, to up to four weeks for the standard process. The three day Fast Track refinancing process, or FastRefi as it is sometimes known, is not offered by all lenders and you can discuss the estimated length of refinancing with a lender in your initial contact with them.

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. 

The main way that the time taken to refinance is reduced in the Fast Track process is by your new lender paying your old lender the outstanding amount of debt before they are given the title to your home. While this cuts out a lot of back and forth communication between lenders, it also means your new lender takes on added risk by being out of pocket before the receive the security for the loan.

To compensate for this risk, the new lender may ask you to pay something called title insurance. This is designed to cover them if there is a hiccup in transferring the title of the home from the old lender after the loan has been settled. Your new lender may offer to cover this expense in some circumstances.  

Lenders that offer Fast Track refinancing 


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.

In the standard process, the lender’s will organise the transfer of debt and property title before the loan is settled, meaning you will not have to pay any form of title insurance. 

Low rate refinancing loans

Below are the steps that apply to both the Fast Track and standard refinancing process. 

Suitability talk

This initial step towards refinancing involves you reaching out to your chosen lender to have a chat about your potential suitability for the loan you are interested in. This will generally be conducted over the phone and take about 20-30 minutes. The lender will want to determine whether your employment status and financial situation will meet the serviceability criteria of the loan for which you wish to apply.

This chat is important because the lender should be able to give you a basic idea of whether or not your loan application will be rejected based on the initial information you provide. This can prevent you applying for a loan that is greatly unsuitable and help you avoid a black mark on your credit report from a knocked back application.

Sending identity and finance documentation

 After this initial chat, the lender will guide you in the next step of sending them documents to confirm your identity and what you have verbally told them about your financial status. What the lender needs will vary so ask them for a specific list to make sure you cover everything they need the first time around. They may be OK with documents being sent online or may prefer to receive them by mail. Again, make sure this is outlined in your initial contact to avoid confusion.

You should be able to get these documents sent off on the day after your first contact with the lender. Having these documents prepared before you get to this part of the process will help it go a lot smoother.

Valuation

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Once the lender has received your paper work, and decides to progress the application, they will organise a valuation of your property. Your property will need to be valued so the lender can determine the loan to value ratio which generally needs to be 80 per cent or less. This can be done remotely or physically and depending on which option the lender opts for the process can take differing amounts of time. This is likely to take place on the third day of your loan application, depending on the lender.  

Loan approval

If everything goes smoothly up until this point you will then have the lender approve the loan. The fast tracked version of refinancing will see you progress to this point within 72 hours. The standard process could take up to 2 weeks.

Settlement

After the loan is approved, your new lender will contact your old lender to have the property title and debt transferred. This is the settlement process which can take a couple of weeks to be completed and there may be fees involved.

Set up and discharge fees

Post settlement you will need to make sure you have paid any outstanding set up and discharge fees. Discharge fee range between $100-400 and setup fee are between $300-1,000. Some lenders will cover these fees, however, to make the switching process more attractive. 

The fees associated with switching loans will be covered by your new lender and rolled into the total amount that you owe them. if these fees are left to be paid over the full loan term they will cost you significantly more in interest charges. For this reason, making an extra repayment to cover any fees charged in the early days of your loan is advisable.  

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

If you wish to return to your previous lender after refinancing, 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 in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Will I have to pay lenders' mortgage insurance twice if I refinance?

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) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.