A Step-By-Step Guide To Refinancing
Today, the refinancing process is much easier and faster than it used to be, and there's a lot more to benefit from converting home loans for consumers as well.
Many Aussie homeowners and investors are now refinancing their home loan every 3-4 years to ensure that they always have the best deal. We're going to walk you through the refinancing process in this post, and what exactly you're going to have to do throughout this trip.
Step One - What's Your Aim of Refinancing?
The first step towards refinancing is to understand why you want to refinance and your motivation. This allows you to figure out exactly what outcome you want, and this will inform you which credit products suit you.
- Paying off your mortgage sooner
- Decrease your monthly payment
- Using equity (take cash out) Borrowers want to take equity from their home loan for several reasons, including such home renovations, buying a new car or going on holiday. Generally, lenders allow homeowners to borrow up to 80% of the value of their property. (Each lender has its policy. It is important to note that exposure to equity is likely to increase the length of the loan, ensuring it will take longer to repay the loan fully.
- Debt consolidation-Borrowers can reduce the total amount of interest they pay over the life of their loans (Such as personal loan, car loan, credit cards, etc.) by combining these debts into their home loan.
- Use new loan features or change current conditions – lenders clients can refinance existing home loan to use additional features such as
- Offset account
- redraw facility
- Splitting loan between a fixed rate and variable rate and other features
Step Two - Review Your Current Financial Situation
You will need to evaluate your current position to find out if refinancing is the right move for you before you get on the refinancing. Check your credit score and Loan to Value Ratio (LVR) to get an idea of how good your status is. You are aiming for a lower than 80% LVR and a good credit score. If your credit score has increased, you may have a decent chance of qualifying for a better interest rate since you first got your home loan.
What are the possible refinancing additional costs (including not limited to)?
- Exit fees and Breaking costs
- Penalties to your current lender (If there is any)
- Home loan application or establishment fees, Upfront costs of the new loan
- Valuation fee
- Lender legal fees
- Penalties to your current lender (If there is any)
Meet with your mortgage broker to talk about what you want; then the broker will find you three loans at least.
Step Three - Compare Various Loans And Lenders
Shopping around and comparing a variety of home loan lenders is critical. At first, a rate reduction of even 0.2 per cent may not seem like much, but it has the potential to save you thousands over your loan's lifespan.
Lenders are expecting to make a lot of money out of the interest they charge lenders, and as a result, they regularly beat each other, ensuring that borrowers have a lot of competitive rates.
Step Four - Specify Your Loan Preferences And Your Requirements
Next stage in finding an appropriate loan for your circumstance is to explain your current circumstances, requirements, and preferences for your new loan.
You have to understand the information below:
- The original home loan
- Your income and job profile
- Your financial expenditures
- Existing property and assets, e.g. vehicles, investment properties, etc.
- Current liabilities, e.g. credit cards, personal loans, etc.
- Your credit requirements.
Step Five - Documents
The documents that you will have to prepare and send will include but not limited:
- Passport, drivers licence, birth certificate (should be verified)
- Home loan statements (Past six months)
- Bank statements (last three months)
- Group certificate or Tax return (Most recent)
- Recent payslips (if you are an employee)
- Loan statements for all other debts (past six months)
Once all the required information has been given, the Broker will be able to make the right decision as to which lender and loan are right for your unique needs.
Step Six - Choosing The Right Loan
After all relevant information has been provided, we will respond to you with the name of one or two lenders (if you are a qualified borrower)
Step Seven - Conditional Approval
After submission of your loan, your selected lender will typically take up to 21 business days to start evaluating your application for refinancing. (in some cases).
Please note: it is usual for your lender to ask you for additional documentation.
Step Eight - Property Valuation
Typically when a borrower is refinancing, banks may request a property valuation to evaluate the total value of the property. Your Home Loan Specialist can organize this with your lender. A speedy approval process will sometimes be completed before conditional approval.
Step Nine - Formal Approval
Formal approval indicates the selected bank has approved to refinance your existing home loan. They prepare a contract to sign for you. Your lender will notify you of your loan approval in writing at this stage – this is usually called formal or unconditional support.
Generally, the mortgage papers will include:
- Hypothecary contract: be sure to check this before signing
- Direct debit form: provide the bank account details that will debit your repayments
The loan papers will be submitted for review and signing to your lawyer. Alternatively, you can go through the agreements yourself and read the details of your mortgage agreement carefully.
Step Ten - Settlement Arrangements
You must inform your present lender of your refinancing decision so that they can send all the data you need to your new lender.
Your new lender will arrange with your current lender both the settlement of your old loan and the establishment of your new loan. This step includes exchanging title and registering the mortgage over your property by the bank.
Settlement day is the day when money is funded for your new home loan to pay off your old home loan and close your account with the existing lender. Your new home loan starts on the day of settlement and usually your first home loan payment is due one month after the day of settlement.
Is It The Right Time To Refinance My Home Loan
Banks are incredibly competitive in today's home loan market and offer new products with excellent flexibility. Even if you've had your current mortgage for a couple of years, checking that you're still on the best situation to review your mortgage
Refinancing is the way toward changing your present home loan with another loan product – either through your present moneylender or an alternate loan specialist.
Reduce interest rates: A variety of advantages can be provided by refinancing your mortgage. It can be a chance to secure a reduced interest rate with prospective savings in monthly repayments.
Payoff your mortgage earlier: It can also be enjoying enhanced loan features that can assist you to pay off the loan earlier.
Increasing your Equity: Buy a new asset of a property such as an investment property or a new vehicle, it could be a way to tap into home equity.
Debt consolidation: Refinancing could also be used by debt consolidation to streamline your finances. Some homeowners merely discover the conditions of their family change over time.
Refinancing Has A Simple Process:
Many homeowners are astounded at how bright refinancing can be – particularly with the assistance of a home loan specialist, who can control the entire procedure.
Refinancing may incur additional costs, so it’s a decision that calls for careful consideration. refinancing, however, may incur extra expenses, so it is a choice that requires careful consideration.
A Loan Health Check by a mortgage broker could be the starting point for you to know how to track your present home loan.
A home loan broker will assess and contrast your mortgage with many other loans according current rates, , charges and other charges, your Mortgage Broker can tell you it is a right time for refinancing or not about home loan market and financial situation.