Step by step guide to refinancing

Refinancing can be greatly rewarding and money-saver. Replacing your existing loan can be a chance to lock in a better interest rate, features you actually need or a lender that understands your needs. However, it can be a bit of a process, so you’ll want to know exactly what you’re up for before you start.

If you’ve been wondering how to refinance an existing loan, it’s your lucky day. Here are all the steps you might need to take to get your refinancing sorted.

Step 1: Understand why you’re refinancing

If you’re thinking about refinancing, there’s clearly something missing from your current loan. What’s your motivation? Common reasons for refinancing include:

  • Securing a lower interest rate

  • Improving loan features

  • Consolidating debt

  • Accessing home equity

Knowing the answer to this question makes it easier to find the best new loan for you.

Step 2: Compare home loans options

If you’re going to go to the trouble of refinancing, you’ll want to shift to the best suited new loan. Speak with a finance broker, check out some comparison rates, and the mortgage broker will help select lenders to determine which loan is right for you in terms of the rate and features. Be sure you are comfortable with your choice of the lender before you apply or transfer your home loan to another bank – making applications to multiple lenders can damage your credit score.

This might include getting answers to questions like what are the new conditions of your loan, are there any features you won’t have anymore, or how long does settlement take when refinancing? ASA Mortgage Brokers can assist you in finding the best-suited lender and home loan product to meet your needs.

Step 3: Crunch the numbers

Refinancing can come with a range of costs - mortgage broker will show you all costs involved. There can be upfront fees on the new loan, exit or discharge fees on the old loan and mortgage registration fees payable to the state government. Bear in mind, Lenders Mortgage Insurance (LMI) cannot be transferred between lenders so even if you paid LMI when you first took out your loan, you will need to pay it again if you plan to borrow more than 80% of your home’s value.

Keep in mind also that your new loan term will start all over again. If you take out a 25-year home loan, the years you’ve already spent paying it off don’t get subtracted. Make sure you calculate exactly the amount of interest you can expect to pay over the life of your new loan, and compare it to what you would pay on your current loan. Once you have all the figures available, do the sums to be sure the benefits of refinancing outweigh the costs.

Step 4: Apply for the new loan

Who doesn’t love forms? Refinancing your home loan will mean completing paperwork similar to that for your current loan. You’ll need to provide proof of income (usually several sets of recent pay slips), as well as personal ID. And because you’re already paying off a loan, the new lender will want to see several months of statements for your current loan.

A refinancing loan is a whole new loan – no cutting corners, no secret tricks. While it might be easier to prove you can afford to pay it, you’ll still have to go through the motions to secure it again. A finance broker will request a list of documents that apply to refinance.

Step 5: Prepare for a valuation

If you’re refinancing a home loan, it’s likely the new lender will want to value your home.

Make sure you understand how the valuation works and what to expect. Allow time to spruce things up before it’s assessed, even if that’s just planting some new flowers and painting a unicorn on your letterbox. There are lots of small things you can do to maximise your property’s market value. Some finance brokers may have access to CoreLogic RP Data and able to request an upfront valuation on the property with the new lender.

Step 6: Loan approval

If your application is approved, formal loan documents will be drafted and forwarded to you for signing. Be sure to read the paperwork carefully, and speak with your solicitor, conveyancer or mortgage broker if you have any questions. Behind the scenes, your new lender will get in touch with the old lender to organise the loan changeover.

Step 7: Settlement

Hooray, your refinancing loan is ready to be settled. On settlement day your new lender will receive the title deeds to your home (previously held by your old lender), and the old loan will be paid out. All you have to do is enjoy a better loan than before (and keep making repayments).

Refinancing is generally a straightforward process, especially if you’ve got all your paperwork on hand and have been keeping up to date with your current loan. With these home loan refinancing tips, you could be rocking a new loan within 4-6 weeks, pain-free.

Your mortgage broker will assist you in every step of the way to the refinancing of your 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. (ME Share article online at (15/06/2020)).

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