In this post, I share a clear, easy to understand explanation of how to refinance your home loan. I’ve broken the process down into nine manageable steps.
But before, we look at HOW to refinance your home loan, let’s take a quick look at WHY many of my clients choose to refinance.
Most families with a home loan are paying more interest to their bank every month than they need to.
How do I know?
Because I’ve helped over four hundred families refinance their home loan to a better rate.
The money they’ve saved on repayments has enabled them to:
- go on holidays,
- renovate their home, or
- just breathe more easily each month.
They changed the quality of their life WITHOUT having to work harder!
They simply put the extra money they were needlessly paying in interest to the bank back into their own wallet by refinancing their home loan.
Despite these attractive benefits, I’ve noticed that sometimes people are reluctant to explore the option of refinancing. Now sometimes, refinancing isn’t the right option. In some cases, my clients or potential clients come to me, ask me to research their options, and we find that they’ll be better off financially by sticking with their current loan.
However, often people won’t even consider refinancing their home loan because they believe it will be ‘too much hard work’ or they aren’t sure where to start. The good news is, with expert guidance and support, refinancing can be a smooth and relatively painless process, I promise.
How to refinance your home loan in nine (painless) steps
Step 1 – Refinancing consultation
The refinancing consultation is the first step in the process. We discuss your current circumstances and goals. It’s important to be clear about what you want to achieve from your refinance.
For example, your goal may be to save money on repayments or use equity to fund home renovations.
Having a clear goal will help guide your decision around which home loan to choose.
Check out my video on the benefits of refinancing your home loan, to give you an idea the types of goals you could set for your refinance.
We then look at your current financial situation, including:
- How much equity you have in your home
- Your income
- Any liabilities you may have. For example, expenses and debts
This discussion helps me understand the types of mortgage refinancing solutions you’re likely to be eligible for, that will also meet your needs.
Step 2 – Compare loans
The refinancing consultation gives me the information I need to start comparing home loans for you.
I have access to hundreds of home loan products from dozens of banks and lenders.
Quick note: To make reading this blog post a bit easier, I’m going to refer to bank and lenders as ‘lenders’ for the rest of the post.
Some of the lenders I have access to aren’t available to the general public. Also, sometimes, I have access to special interest rates and fee discounts or waivers.
I search my database to find home loans with serviceability criteria you’re likely to meet, that will also match your refinancing goals.
I check your eligibility for various loans without them being recorded as ‘credit enquiries’ on your credit report. This means my research won’t affect your credit score.
I create a shortlist of appropriate loan products. When compiling the shortlist, I also calculate switch costs and determine the break-even point of your loan switch.
Here are some of the lenders I have access to:
Step 3 – You choose your loan
- I present you with a personalised shortlist of suitable mortgage refinance products (home loans)
- I explain the features, benefits and fees for each option
- You then choose which loan you’d like to apply for
Step 4 – Submit paperwork
From here, I ask you to supply documents such as payslips and proof of identity. The documents you need to provide will vary depending on your circumstances and the lender or bank’s criteria. Every lender has different assessment criteria.
I look after all the paperwork for you. I package your application up in a way that makes the lender’s assessment process as easy an efficient as possible. I know EXACTLY what each lender is looking for in an application. So, I make your application as attractive as possible; I help you put your best foot forward.
I then get on the phone and let my personal contact at your chosen bank lender know that your application has been submitted. I’ve built relationships with contacts from all of the lenders on my panel. I find that this process of carefully packaging your application and then calling the bank helps to speed up the application approval process.
Step 5 – Valuation
Once the lender has received your paperwork and decides to progress your application, they will organise a valuation of your home.
Your home needs to be valued so the lender can determine the Loan to Value Ratio (LVR). Typically, the Loan to Value Ratio needs to be 80% or less to avoid Lenders Mortgage Insurance (LMI).
Step 6 – Lender processes refinance
Your new lender then contacts your current lender (the one that your home loan is currently with) to arrange the terms of transferring the debt. This can take more than a week, during which time you’ll need to wait until your new loan is approved. As a result, the whole process usually takes up to two weeks.
In some instances, with particular lenders, the refinance can be ‘fast-tracked’ and completed within 72 hours. If you choose to fast-track your refinance, your new lender may ask you to pay title insurance. This is designed to cover them is there’s a hiccup in transferring the title of the home from the old lender after the loan’s been settled. Your new bank may offer to cover this expense in some circumstances.
Step 7 – Settlement
After the loan is approved your new lender will contact your old lender to have the property title and debt transferred.
Fees may be involved in the settlement process. I’ll always let you know upfront about any fees involved in the refinancing process.
When I research your home loan options, I take factors such as fees into account. Check out my video on Common mortgage refinancing traps to find out what you need to consider when refinancing your home loan to make sure the refinance will actually leave you in a better financial position.
Step 8 – Post settlement
Once your loan has settled any outstanding setup and discharge fees need to be paid. Some lenders will cover these fees. The fees associated with switching loans will be covered by your new lender and rolled into the total amount you owe them.
If these fees are left to be paid over the full loan term, they will cost you significantly more in interest charges. For this reason, making an extra repayment to cover any fees charged can be a wise decision.
Step 9 – Review regularly
It’s essential to keep an eye on interest rates in case your lender increases rates on your particular home loan product. Ongoing rate watch is a service we offer all of our home loan clients.
I also recommend you review your home loan every twelve months. So much can change in a year, so you want to be sure you’re still getting the absolute best deal for your situation. Your credit rating may have changed, the amount of equity in your home will probably increase, and these things can improve your bargaining power. There are always new home loan packages on the market too.
I regularly review my clients’ home loans for them, to be sure they’re still getting the best deal. If I find there’s a better home loan out there for their circumstances I contact them to discuss the possibility of switching.
At first glance, the home loan refinancing process can seem quite daunting, but the benefits can be huge.
With expert support refinancing your home loan can be pretty seamless. If you need a hand sorting out your refinance, or would just like to explore whether refinancing is the right option for you, please reach out. I’m only ever a phone call or an email away. You can book a free Refinance Consultation with me here.