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.
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.
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.
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.
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.