Don’t overpay on your home loan: An easy seven-step guide to refinancing
Refinancing is the process of taking out a new mortgage to replace your existing home loan. Our step-by-step guide to refinancing shows what’s involved.
Step 1 – Understand why you are refinancing
Think about your motivation for refinancing; it will shape the choice of loan that is right for your needs. Common reasons for refinancing include:
- Securing a lower interest rate
- Enjoy improved loan features
- Consolidate debt
- Access home equity
Step 2 – Compare home loans
Speak to a mortgage broker, check out comparison websites, and talk to lenders to determine which loan is right for you in terms of rate and features. Make sure you are comfortable with your choice of lender before applying for a new loan because applying to multiple lenders can damage your credit score.
Step 3 – Crunch the numbers
Refinancing can come with a range of costs including up-front fees on the new loan, a discharge fee on the old loan and mortgage registration fees (payable to the state government).
Bear in mind, lenders’ mortgage insurance cannot be transferred between lenders. 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 per cent of the value of your home.
Once you have all the figures, do the sums to be sure the benefits of refinancing outweigh the costs.
Step 4 – Apply for the new loan
Refinancing your home loan will mean completing paperwork similar to when you took out your current loan.
You’ll need to provide proof of income (usually several recent pay slips), as well as personal ID. Because you’re already paying off a loan, the new lender will want to see several months of statements for your existing mortgage.
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. It pays to give your property a quick spruce up to maximise its market value.
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 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
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 that remains from here is for you to begin managing the repayments on your new loan.
Refinancing is normally a straightforward process that typically takes four to six weeks to complete. So it won’t be long before your new loan is in place.
This article originally appeared here.