Once you buy a home, it’s pretty easy to think that’s it – you have a loan, you’re making your repayments, and one day the home will be all yours, paid in full. But just because you bought the home with a certain loan doesn’t mean you can’t change it. What? Yep, it’s called refinancing, and it can potentially save you thousands and have your loan working better for you. So how do you refinance your home? The trick is to know what you’re looking for, why, and what’s available to you.
Let’s take a quick look at why you would refinance your home, answer your big questions like can we refinance our home, how to refinance my home, why refinance my home and should I refinance my home loan, and step you through how to refinance a home loan.
Reasons to refinance your home loan
There’s lots of reasons to refinance. If you’ve been looking into whether you should refinance your home, here’s a few to get you started.
- You may get a better rate and reduce repayments.
- You’re paying too much in fees and have found a better option.
- Your lender announced interest changes.
- You’ve reached a point where you can borrow at 80% LVR, or loan to value ratio, reducing the rate from the one you got when you were over 80% LVR.
- You may get rewarded with loyalty points with another lender (such as Velocity Frequent Flyer Points).
- You want to access the equity you’ve built up in your home for renovations or an investment property purchase.
- You’re looking to consolidate your other debts into your home loan.
- Your fixed or interest only period might be expiring.
- You’re looking to change the loan structure or term in some way.
How to refinance my home – is it easy?
Yes and no. First you’ll have to review what refinance options are available to you. If you are in a fixed rate term, you may not be able to refinance without incurring fees. You’ll also need to review your lender options – you may choose to remain with your existing lender, or switch to a new lender.
Once you apply for your chosen option, you may have to go through a loan process just like you did with your original loan, so that probably means a bit of paperwork. (If you refinance with the same lender, it’s usually quicker).
What does it cost to refinance your home loan?
Refinancing costs will vary depending on your individual circumstances, however some common refinance costs include:
- Discharge fees for your old loan
- Application fees for your new loan
- Valuation fees for your existing home
- Land registration fees to register a new mortgage to your new lender
- Lenders Mortgage Insurance (LMI) if you are borrowing at greater than 80% LVR after refinancing
- Ongoing fees
- Break cost fees if you have a fixed rate home loan.
Are there any reasons I shouldn’t refinance?
It might sound all win-win, but you should still pause for a moment to consider should we refinance our home? It might not be worth the effort for a few simple reasons:
- If you have a fixed rate loan and you break the term, you will be subject to break costs. You’ll need to factor this into your budget planning.
- If you think the value of your home might have decreased since you purchased it, you may not get a better deal.
- You might be in a bit of a pickle credit-wise if you have not demonstrated strong credit behaviour (with late payments or issues with credit cards), leading to a risk you might be declined.
- If you’ve explored the options, and the costs appear to outweigh the benefits.
How to refinance a home loan, step by step:
How to refinance your home loan usually involves the following steps:
- Valuation – if applicable, your new lender will value your home
- Credit score – your credit history will be checked to assess your risk
- Income, assets, expenses and liabilities – you’ll need to share this info with the lender
- Bank statements – proving your serviceability will be required
- LVR – your loan to value ratio will be calculated
- Rates and repayment schedules – will be set by the lender
- Assessment – your application will be approved or declined.
What difference does refinancing make?
If you’re wondering why you’d refinance your home when all you might gain is a fraction of a percent, don’t forget it all adds up over the life of the loan. Imagine you had a $500,000 remaining loan at 4.20% p.a. for a period of 25 years. If you refinanced to 3.80% p.a, you’d be saving less than half a per cent on the interest rate. But over the period of the loan, that works out to be over $30,000 in savings. Now that’s worth a little bit of paperwork.
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