How to Refinance your Home Loan
The majority of people with a mortgage understand that refinancing can save thousands yet knowing how to exactly to do this is another thing.
Whether you’re looking to save money, enjoy different features or consolidate other debts, there can be a number of scenarios where refinancing your home loan is a good idea.
If you’re sure it’s the right move for you, here are some steps to take to get things underway…
1. Know the benefits of refinancing & how it can benefit you
It’s worth investing time and energy into pondering why you want to refinance as well as what potential benefits you want to take advantage of.
Refinancing your home loan could help you:
- Get a lower interest rate or reduced fees
- Reduce your fortnightly / monthly mortgage repayments
- Borrow more for investments, a renovation, or a new car
- Consolidate several debts / loans
As soon as you’re clear on what you wish to attain, it’s a lot easier for you to ask lender institutions the right questions and choose the loan that best matches your requirements.
Doing your research prior to applying for home loan refinancing could assist you in making a decision that serves you down the track and helps you enjoy the rewards.
2. Comprehend your current financial situation
Prior to you beginning to seek a new home loan, it’s a good idea to examine your current financial position and the things you as a lender need to know when you apply. This may help you to decide if now’s the right time to refinance and also possibly which lender is better for you.
Keep in mind, when you apply to refinance your home loan, your lender will certainly analyse your capability to repay. Their decision will be based upon the information you provide them as well as what’s presently expected in the industry.
Lenders are usually really interested in three things, sometimes known as the ‘three Ps’.
- Purpose: What is the main reason you want to refinance? Are you seeking a better rate or extra features? This information lets the lender suggest the right kind of features and product(s) that you could be looking for as well as examine the pertinent risks.
- Person: Are you a person that will pay back their loan?
Potential lenders make use of a credit report to help them determine whether to offer you credit and at what terms.
Along with supplying a summary of how you’ve managed your credit accounts, it also consists of any ‘red flags or indications of poor repayment history that the potential lender may find.
Take a look at your credit report to examine what’s on it and whether it’s factually accurate as well as complete.
Your credit report contains many details about you, consisting of;
– Personal details for identification
– Credit application details, including mobile phone payment plans
– Current credit card(s), debt, and loans
– Repayment history
– Defaults, bankruptcies, debt agreements and credit infringements
– Payments missed over 60 days for utilities (water, electricity / gas) and phone (mobile / home, internet).
Inspect your credit report thoroughly. If you detect something that’s inaccurate or insufficient, prepare to have it remedied prior to applying to refinance your home loan.
- Payback: Can you manage the home loan repayments should something go wrong?, exactly how would the bank recoup the loan? By using a bank’s mortgage repayment calculator, you can estimate how much you could be paying on a new home loan.If your repayments remain the same or even are reduced and you’re presently making your repayments comfortably, this should not be a concern.If your loan repayments increase in the future, you’ll be required to be able to pay these new fortnightly or monthly repayments easily.
Calculate how much you can borrow…
Lenders will normally only lend as much as 80% of the value of your home. This is referred to as the Loan-to-Value Ratio or LVR. If a property has to be sold to repay the loan in the future, the other 20% assists to cover the costs of selling and any reduction in the market value.To discover your LVR, add your total secured loans, divide by current property value and multiply by 100.
3. Compare home loan options
Since you now recognise why you intend to refinance, it’s time to begin looking at your options.
Before you make the decision to refinance, it’s worth calling your present lender to tell them what you are planning to do, as well as your reasons why.
This gives them the chance to offer you a much better interest rate or an improved loan arrangement that’s more to your taste. They might be able to offer you a better deal than you would certainly obtain if you were to change financial institutions.
If you’re sure you’re ready to leave, now’s the time to do some serious research. Remember to compare all the factors that are relevant to why you are refinancing.
4. Pick a lender for your home loan refinance
The three main ways you can compare how to refinance your home loan are:
(1) Enquire directly
Visit each any lender institution you are interested in either online, over the phone or in person – to get the information you want and need straight from the source. Remember: don’t forget to check that they have a valid Australian Credit Licence.
The downside of this is that it takes time to deal with each lender, you could be missing out on better options from other lenders; and you might not understand the terms that different lenders use.
(2) Use comparison websites
You can browse most websites for sections or keywords associated to your reasons for refinancing. They generally have a range of product features in tables that are ordered by lender, that can be used to easily compare similar features and fees.
Most of the information on comparison websites comes straight from the lending institutions that list on the website. So, it’s worth looking into how the website is paid and the basis on which they arrange the search results.
(3) Opt to use a broker
Locate a mortgage broker that you are certain will act in your interests and make objective lender recommendations. The advantage of this is that the broker will complete your application and deal with the lender institutions on your behalf.
Brokers are paid by the lenders by the means of commissions, based upon the size and term of your home loan. So shop around before picking who you’ll use.
5. How to apply for a new home loan
Your research has with any luck revealed the loan and terms that match your needs and goals. Now it’s time to fill out your application.
The three ways you can apply for a home loan are; by submitting an application online, going to a mortgage broker, or visiting lender institutions in order to complete your application.
When you apply, you will need to provide all your information and supporting documents for the lender to decide whether to approve your application.
6. Approval and settlement
As soon as you’re approved, your new lender will send you the new contract and mortgage documentation.
Just like with any kind of contract that entails large sums of money, ensure that you seek independent legal advice prior to you signing. Even after that, make sure you personally understand any terms and conditions within the document. If unsure of something – it is important that you do ask.
Once you’ve signed the documents, your new lender will usually organise paying out your old lender and transferring the mortgage and any other accounts that were included in your refinancing.
Once that’s all taken care of, you’ll receive a welcome kit from your new lender that should have the agreed interest rate and repayment terms on it. Inspect this paperwork to ensure that all details are correct and afterwards set up your accounts to begin making your new repayments.
Congratulations – you have successfully refinanced your home!
It’s just that simple to refinance your home loan.
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