The process of switching to a new home loan is called refinancing. Refinancing can be a great way to save money on interest rates and improve the terms of your loan to suit your needs. If you’re looking to refinance your home loan, it’s important to do it at a time when there’s not too much pressure on you personally or professionally. This might require you to get an idea of how long the process will take.
How long does refinancing usually take?
The process of refinancing usually takes 4-8 weeks on average, but it can take as little as 1 week in some cases. A number of factors can account for the discrepancies in the length of the process. Some lenders will simply take longer than others to examine your documentation, but you can help the process by providing a thorough application.
Some of the main factors that affect the amount of time it takes to refinance include:
- How quickly you submit the necessary documents.
- The amount of documentation you provide.
- The strength of your application (i.e. a high credit score and good evidence of long term employment will position you as a strong applicant and help the process go faster).
The refinancing process and timeline
The refinancing process usually follows these steps:
- Review your current mortgage. You may want to use a refinance calculator to do this. You should consider whether you’re comfortably able to make your current repayments and whether or not your financial situation is likely to change in the near future. If you’re unhappy with the term of your loan, think about what you’d need to pay it off faster.
- Search for a new home loan or speak to a mortgage broker for help. A mortgage broker will be able to review your financial situation – including your income, assets, liabilities and expenses – and tell you whether or not you are a good candidate for refinancing. They will also be able to help match you up with a suitable new lender.
- Once you’ve chosen your new lender, you submit the refinance application. This application will be very similar to your original home loan application. Your home may need to be revalued.
- After your application has been approved, you will get your settlement date with your current lender.
- Once that is completed, you will receive new documentation and you’ll begin making repayments on your new loan.
How does refinancing work?
Refinancing means paying out your current home loan by taking out a new loan with a different lender. There are many reasons why someone would choose to refinance – the main one being to save money on interest.
However, refinancing can take time and may require you to pay exit costs to your existing lender. You should consider all the potential costs involved before making the decision to refinance.
What are the benefits of refinancing a home loan?
There are many reasons why someone might choose to refinance their home loan. Not only is it possible to save money by refinancing, it could also help you pay off your loan sooner or achieve some of your other financial goals.
Lower interest rate
Many lenders offer a lower interest rate for new customers, so you may be able to benefit from this. Or, interest rates may have lowered since you first took out your home loan.
Change your loan terms
You may want to change from a fixed to a variable interest rate, or vice versa, shorten your loan term or add loan features. If your current home loan won’t allow you to do any of these things, refinancing might be a good option.
Consolidate your debts
If you’re paying interest on multiple debts, consolidating them into one might help you save money. Debt consolidation can also make your repayments less stressful by giving you less dates and schedules to keep track of.
Access your equity
Refinancing can be used to give you the option of using the equity you have in your current home to purchase something else. This could allow you to fund a vacation, new car or investment.
What can cause delays in the refinancing application?
Sometimes there is nothing a homeowner can do to speed up the application if the lender needs a certain amount of time to assess it. However, some common issues that can cause delays in the refinancing application for home loans include:
- Errors or gaps in your application, such as forgetting to provide some of the documentation.
- The lender requesting more documentation than they originally asked for.
- Misunderstandings between the lender and the homeowner.
How to quickly refinance a home loan
If you’re looking to speed up the refinancing process, there are a few things you can do. Having all of your documents and information prepared beforehand can go a long way. This includes:
- Knowing exactly what you want before you apply. Do you want to change the terms of the loan or just commit to a lower interest rate? You should also have a clear budget and financial goal so that you know which loans you might qualify for.
- Having a good credit score might help your application go through faster. You should check your credit report before you begin the refinancing process. If you have a low credit score, you may need to speak to a financial advisor to consider your options.
- It may be helpful to request a mortgage statement to find out exactly how much equity you have. This can help you calculate your maximum loan amount when you refinance.
- It’s also a good idea to calculate your debt-to-income ratio (DTI). You can do this by adding up your monthly debts (including mortgage repayments, credit card loans and any other debts, such as a personal loan or car loan) and then dividing this total by your gross monthly household income. A DTI of 43% or lower is considered reasonable.
If your home requires a reappraisal, you may also want to do the following, in order to get an accurate understanding of the value of your home before you apply to refinance:
- Research the local property market. Has the value of the properties in your area increased since you moved in?
- Find evidence of any permanent upgrades that you’ve made to your home (such as contracts or receipts) and keep them handy. You may need to show the appraiser these documents.
Frequently asked questions
Refinancing with the same lender could be a faster process than going with a different lender. This is because they will already have a lot of your information on file.
However, the timeline will still depend on the lender’s process.
On average, refinancing usually takes 4-6 weeks.
If you refinance with a new lender, they’ll need to collect all of your documentation, including personal details and financial information. Then, they’ll be able to provide you with a more specific timeline.
Refinancing a home loan involves replacing your current mortgage with a new mortgage, usually with a different lender. Most of the time, this is done to renegotiate the terms of the loan, receive additional benefits or save money on lower interest rates.
You can apply to refinance your home loan whenever you like, but there are a few things that you should consider before you do so. It’s best not to refinance within the first 2 years of your current mortgage, because it’s unlikely that you’ll get any great benefits so early on. If you’re considering refinancing, you should think about:
- Whether you’re likely to experience any more personal, professional or financial stress than usual during or after the refinance
- What’s happening with the current interest rates
- Whether the value of your property has gone up since you bought it
Generally, you should review your current mortgage every 3-4 years and consider refinancing if it no longer suits your needs.
Technically, there is no reason why you can’t refinance whenever you like. However, refinancing before you’ve had your home loan for at least 12-24 months is generally not recommended, because it’s unlikely to be financially beneficial.
The cost of refinancing will vary depending on individual circumstances, as well as the mortgage lenders involved. Some of the fees involved in refinancing include:
- Discharge fees – paid to the existing lender to pay out the loan and prepare the documentation required for the new loan.
- Application fees – the cost of applying for a new loan.
- Property valuation fees – these are required if your property needs an up-to-date valuation.
- Break fees – some lenders may charge break fees if you decide to refinance within a certain period of time.
- Lenders Mortgage Insurance (LMI) – you may have to pay this, depending on how much equity you have in your property at the time of refinancing
- Land registration fees – you will have to pay these to remove the registration of your existing loan from your current lender and transfer your new mortgage to the new lender
When refinancing, you’ll need to provide a number of the same documents that were required when you applied for your existing home loan. A lender will usually ask to see:
- Personal information and ID
- Proof of income (usually payslips, your most recent group certificate and a letter from your employer confirming your income)
- Your current home loan statement
- Records of your assets and liabilities (you may be asked to provide bank or credit card statements)
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.