Have you ever thought about refinancing your home loan, but decided it wasn’t worth the hassle? You may be surprised to find that switching mortgage lenders may actually be easier than you anticipated, which could make refinancing worth reconsidering.
Why refinance?
Even if you chose the best home loan to suit your needs when you first signed up for your mortgage, changing circumstances could mean that your loan is no longer helping you meet your goals. Perhaps your living situation has changed, or your lender has changed the interest rates, fees, features or benefits of your current home loan.
By refinancing and switching to a different lender you could:
- Lower your interest rate and save money from month to month
- Pay off your loan faster by getting a lower rate but making the same or higher repayments
- Access equity in your property to pay for renovations or other expenses
What do you need to refinance?
Refinancing a home loan is a lot like applying for an all-new mortgage, so you may need many of the same documents and related information as you did when you first applied for your home loan. This could include payslips and bank statements to help prove your income and expenses.
The biggest difference between applying for your first home and applying to refinance is that you may not need to pay a deposit in the traditional sense. Instead, the equity you hold in the property will play a similar role as a deposit. Much like applying with a deposit, refinancing with equity of less than 20 per cent of the property’s value could mean having to pay Lender’s Mortgage Insurance (LMI) – even if you already paid for LMI when you first applied for your home loan, LMI is not transferable.
Keep in mind that some of the refinancing home loans with the lowest interest rates and fees and the most flexible features and benefits also have some of the lowest loan to value ratio (LVR) requirements – in other words, you’ll need to hold more equity in your property to qualify for these loans.
How to compare home loans when refinancing
- Compare interest rates: The lower the rate, the less you may need to pay each month, or the faster you may be able to pay off our property. Keep in mind that there are important differences between fixed, variable, and split rate home loan deals.
- Compare fees and charges: You may need to pay new upfront fees to a lender when you refinance your mortgage with them. There may also be fees to pay when leaving your current lender, such as break fees if you still have a fixed interest rate. The total cost of fees could affect the overall value offered by switching.
- Consider the remaining term length: Refinancing to a longer loan term can help lower your mortgage repayments from month to month, easing pressure on your budget. But because this means you’ll take longer overall to pay off your property, you may end up paying more interest in total over the long term. You could instead look into switching your loan but keeping your current remaining term length, or even going for a shorter term – you could pay more from month to month, but you may pay off your property sooner and pay less total interest.
How long does it take to switch home loans?
The steps involved in refinancing generally go something like this:
- Get your information together – source documents proving your income, expenses, assets and liabilities.
- Complete the lender’s application form and await approval.
- Your property may need to be valued, which could take a little extra time.
- Once your application is approved, the new lender will contact your current lender about discharging your current loan
- On the settlement date, your old lender will pay out your old loan, and you’ll start making repayments with your new lender.
In most cases, the entire refinancing process could take anywhere from two to six weeks from start to finish, depending on the complexity of the loan and the lenders involved. In a few cases, It may be possible to refinance in as little as three days, though this may mean paying the lender’s Titles Insurance to help cover their risk that there could be problems transferring the property’s title from one lender to another.
What if you have bank accounts or credit cards packaged with your home loan?
If your original home loan was a package deal that came with other financial products, such as a bank account or credit card, these products may not also switch to a new lender when you refinance your home loan. You may have the option to switch your mortgage to another lender but keep your transaction account and credit card with the original bank, though splitting the package may mean missing out on discounted rates, fees or other benefits.
If you also want to switch your bank account and credit card when you switch home loans, this can often be arranged as part of the process. It shouldn’t add a lot of extra time to the refinancing process, though there may be some extra forms to fill out and calls or branch visits to make to ensure that your funds and balances are properly transferred. Switching credit cards may take a little longer, as the lender may need to conduct a credit check as part of the process.
Is refinancing worth it?
Even if refinancing still sounds like a lot of effort and hassle, you may find that the rewards can be worthwhile. As well as potential interest savings, you could benefit from cashback and access to useful features and benefits from your new lender.
One way to potentially make the refinancing process a little simpler is to contact a mortgage broker. These home loans experts know refinancing inside and out, and can take care of a lot of the paperwork and liaising with lenders on your behalf. Plus, since most brokers in Australia are paid commissions by lenders, contacting one for help is often absolutely free.
