The beginner’s guide to refinancing

The process for refinancing a home loan isn’t as complicated as you might think.

In this step-by-step guide, we show you how to go about it, including what to tell your existing lender, what you need to know about applying for a new loan and how to figure out whether refinancing is really worth it.

1. Consider whether you should refinance

There are many reasons to consider refinancing, from getting a better interest rate to renovating or extending, and from buying an investment property to consolidating debt. But before you commit to going with a new lender, the first step should always be to work out whether refinancing makes financial sense.

To do this, you should first have a qualified lending specialist compare repayments between the new loan and your existing one based both on your interest rate and monthly fees. A lending specialist will provide you with a detailed comparison report also factoring in your financial goals.

Beyond this, you should also factor in any costs you may have to pay for setting up your new loan, as well as those you’ll need to pay for exiting your existing one. Common fees and charges you may have to pay for refinancing include:

• Early termination fees and, if you’re on a fixed rate loan, potentially including break costs
• Valuation fees
• Lenders Mortgage Insurance, if your loan-to-value ratio (LVR) is higher than 80%
• Mortgage stamp duty or transfer duty
• Other costs which a lending specialist can advise on

However, normally the costs can be quite low and the benefits many.

2. Choose the right home loan

When you’re comparing a new home loan with your existing one, you need to make sure you’re comparing like for like. If your current home loan offers features such as a redraw or an offset account and the new one doesn’t, you may be worse off even with a lower interest rate.

That said, if your existing mortgage doesn’t have the right features for you, refinancing may give you the chance to take out a more suitable home loan. For instance, if you plan to have a period away from work in the near future, switching lenders or products may give you access to features such as a repayment holiday or interest-only period.

A lending specialist will help you choose the right home loan.

Related post: Why has home loan refinancing surged in recent months?

3. Start preparing for your refinance application

When you refinance, you’re applying for a new loan. So you’ll need to go through a similar application process to when you took out your existing loan.

The new lender will want to see evidence of your capacity to repay your loan, as well as evidence of your existing assets.

Don’t worry!  Your lending specialist will help you with the paperwork which will include things like:

• Details of your income. This could include payslips, recent tax statements or evidence of payments entering your bank account. If you own an investment property, you should also be sure you have evidence of rent being paid to you
• Details of any assets you own outside of your home. This includes shares, superannuation, investment properties and other assets, as well as the value of your home contents, motor vehicle, jewellery and more
• Details of your living expenses. Increasingly, lenders will want to know exactly where your money goes each month, rather than relying on estimates
• Your credit history. You should always know your credit score before applying for a loan. You don’t need to pay for this and your lending specialist can help you access your credit score

Related post: Why your credit score is important and now more visible

4. Apply for your refinancing loan

Once you have all your information ready, it’s time to formally apply for your loan.

This is where your lending specialist really goes to work for you to ensure you get a speedy response to your application, and that the loan approval is suitable for you.

During this process the new lender will want to know the valuation of your security property. This is so they can accurately estimate the loan to value ratio (LVR) on your loan.

A lending specialist can normally access this for you upfront (and free in many cases) so you both know the result before lodging your loan application.

5. Inform your current lender

Your loan is approved! You should now let your current lender know you’re leaving. Your lending specialist can help you arrange the necessary forms for this so you don’t spend time on the phone with your old lender.

6. Review and sign the loan documents

You’ll receive your loan documents and in many cases your new lender can provide these to you digitally so you can sign quickly – without wading through mountains of paper!

Your lending specialist will go over the full terms with you and you can also have your own solicitor examine the contracts if you feel unsure.

Once you’ve signed all the documents, it’s an easy process to return everything to your new lender or their legal representative.

7. Enjoy your new loan

Just as when you bought your home, there will be a settlement. This time your new lender will take over the title deeds from your current lender and become the mortgagee on your property. When this happens, they’ll also provide you with the details of your new loan and you’ll start paying it down.

And finally…

Refinancing once was a long, drawn out and complicated process. But that’s not the case anymore. With a lending specialist at your side you can often have your new loan in place within 2-3 weeks.

With modern technology you can also refinance your home loan from the comfort of your couch.

Using web and phone based interactions with an LJ Hooker Home Loans lending specialist, home owners can compare, choose and settle a home loan.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.