Are you comparing your current loan rates, looking to move house or just thinking of different home loan possibilities?
Refinancing your home loan could help you find a better interest rate and save you money in the short and long-term. You may be able to consolidate debt into fewer payments, and depending on your loan terms, make additional repayments or access redraw when you need.
Once you’ve considered the factors mentioned above, it’s time to refinance your mortgage. The process may feel a little daunting at first, but here we’ve broken it down into seven key steps for you:
- Look at the cost of your current home loan
- Ask your current lender for a better deal
- Examine exit costs or break fees
- Compare home loans
- Look at the costs of moving to the new lender
- Apply for your new home loan
- Exit your old loan
1. Look at the cost of your current home loan
First step if you’re thinking about refinancing, is to look at how much you’re currently paying. Your interest rate should be listed on your home loan statement, in your online banking (if applicable), or in the home loans product section of your lender’s website. You can also call your lender to find out directly.
One last item to consider – make sure you find out about any ongoing or annual fees you’re paying as well. These will factor into your calculations when you work out how to get yourself a better deal.
2. Talk to your current lender about a better deal
One big step many people miss in the refinancing process is talking to their current lender about getting a better rate. But this should always be one of the first steps you take, because your lender is highly motivated to keep you. In fact, they have entire teams devoted solely to keeping you as a customer. Typically, it costs a home loan lender much more to bring in new business than to retain old business.
While you might not have thoroughly researched all your home loan options at this point in the refinancing process, it is good to have a rough idea of some of the rates on offer. If you can quote your lender a lower rate you’d like to be paying, you have a point at which to start your negotiations. It’s also worth noting, even if your current lender offers you a better deal, you should still do the kind of thorough research laid out in the steps ahead, to make sure it makes sense to stay with them instead of finding a better deal somewhere else.
3. Examine exit costs or break fees
As discussed, more often that not there are some costs associated with leaving your current lender. Almost every lender will charge you a discharge fee. This usually isn’t more than a couple of hundred dollars, so it shouldn’t seriously eat into your refinancing savings. But you should still check to see exactly how much you’ll be paying.
If you’re in a fixed rate home loan, you’ll need to check the break costs for leaving your loan before the term is over. These can run into the tens of thousands, but could be as low as a few hundred dollars – and may include outstanding premiums for Lenders Mortgage Insurance and the like. The best way to find out is to simply call your lender and ask.
4. Compare home loans
Now it’s time to take some real action and start comparing some of the best rates on the market. Right away you’ll probably find a number of lenders with significantly cheaper home loan rates than you’re currently paying. But once you take that closer look, it’s important to compare beyond just the headline rates, pay attention to the interest rate and the following factors:
- Fees. High annual or ongoing fees could eat into the value you get from a new lender. Not all fees are a deal-breaker, of course. For instance, some package loans charge an annual fee, but give steep rate discounts and waive other fees. To get an idea of whether the fees associated with a new lender are too high to make refinancing a good idea, take a look at the comparison rate. The comparison rate takes into account fees and charges, along with the interest rate.
- Features. Remember to compare home loans by examining the features they offer, since some of these features can help you shave years off your home loan. Some features you might look for would be an offset account, redraw facilities and split facilities.
- Fixed vs Variable interest rate. A fixed rate home loan provides a guarantee of what your repayments will cost over the loan period. A variable loan provides more flexibility to make extra repayments when you like, and save you interest with an offset account. If you decide to choose a split loan, you have the option to do both!
- Flexibility. A good mortgage offers flexibility and let you manage your home loan in the way that’s best for your specific circumstances. Some of the flexible options you might want include extra repayments, more flexible repayment frequency (weekly or fortnightly) and loan portability.
5. Look at the costs of moving to the new lender
Once you’ve looked into the rates, fees, features and flexibility of different home loan products and narrowed down your search, it’s time to weigh up the cost of switching lenders. You’ll want to look at the up-front costs of moving to your new lender, as there can be a few common up-front fees you might be asked to pay (such as an application fee, a settlement fee or a valuation fee).
When you’re looking into these fees, also pay attention to any promotions lenders are running. There may be special deals where home loan lenders will waive fees for refinancers, or even offer to pay clients some of costs associated with leaving their current lenders. Once you’ve worked out the costs of leaving your current lender and the costs of moving to your new home loan lender, you should have a good idea of how much you’ll save by switching.
6. Apply for your new home loan
Now that you’ve found the home loan that’s going to give you the best deal and the biggest savings, it’s time to apply. Different lenders will have different application processes and lending criteria, with some taking place entirely online and some requiring you to mail or scan and send forms and documents. In general, though, there are few details you’ll need to have ready:
- Personal information. You’ll need to provide your name, date of birth and contact info. Also, you’ll be asked to produce a valid ID, such as a driver’s licence, Medicare card or passport.
- Financial information. You must provide details of your employment, income, assets and liabilities. Lenders will want documentation on this, so you’ll need to have payslips and bank statements ready.
- Loan information. Details of your current home loan are required, so your lender can see your repayment history and outstanding loan amount.
- Property information. Your new lender will need details about your current property. They’ll want to have a valuation done to assess its current value so they can determine how much to lend you.
Once you’ve applied, the approval process generally may take up to 10 business days – depending on the information provided, credit approval and your personal financial circumstances.
7. Exit your old home loan
This is the easy part. Your new lender will communicate with your old lender to discharge you from your old home loan. They’ll exchange all the necessary documentation and take care of things like the title transfer for you.
Once this is done, your new home loan will reach a stage called settlement. This is when the actual funds are disbursed to pay out your old home loan. If everything goes according to plan, you should be able to get from application to settlement within a couple of weeks.
And that’s that. Congratulations! You’ve successfully refinanced your home loan. Now just make sure to do a health-check on your home loan every 18 months or so to make sure you’re still getting a good deal. The refinancing process takes a little time and a little research, but for most lenders it’s a pretty process – that can save you up to tens of thousands of dollars in the long run!
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.