When and How to Refinance a Home Loan

When and How to Refinance a Home Loan

The mortgage industry is jammed with jargon which can be challenging to navigate. Considering that a homeowner’s mortgage payment is usually their most significant monthly expense, it is essential to understand what you are paying and your options. A 30-year mortgage can seem daunting, but you can optimise your home loan and change lenders and conditions. If you are in a fixed rate period, this can have more considerations than when your fixed rate ends. As your lifestyle and goals change, reviewing your options for home loan refinance is worth revisiting.

When should you consider refinancing a home loan? 

Home loan refinancing is when your new lender settles your mortgage debt with your current lender. When you come across a lender offering better terms and conditions, you may move forward to process the formalities that would entail them to pay off the indebted amount to the existing lender and take over the outstanding amount. 

You can also select a different mortgage service from your present lender if this is suitable. There are certain key elements to consider when refinancing your home loan in Brisbane, Australia:

  1. The prospective lender provides you with a lower interest rate than the one at hand.
  2. When there is an option to switch to a fixed or variable rate of interest, depending if rates are going up or down.
  3. If you want to reduce the tenure of your mortgage loan and increase repayments.
  4. If the prospective new lender provides better loan features and services and favourable terms.
  5. Refinancing will allow you to use your equity to access additional funds if you require extra funding, such as to undertake renovations.

You can refinance at any point in time. If you have an equity of less than 20% (80% Loan to Value Ratio), there is a possibility that you have to take a Lender’s Mortgage Insurance, and there will be fewer options available.

How to Refinance your Home Loan 

No universal hard and fast step-based rules guide your refinancing process. We recommend you start with determining what you are trying to accomplish with your refinance. Once the objective is identifiable, there are some typical stages of mortgage refinancing:

  1. Research is the accompanying step where you need to assess your current interest rates and repayment amounts and link them to your personal and financial goals. You have to look for options that best suit your circumstances.
  2. Use the present terms of your loan to draw a comparison with what prospective lenders offer, including ancillary services, fees, and features.
  3. It is always preferable to speak to an expert as they hold varied information about the industry and would help you clarify any ambiguities. They could also use their expertise to get you a better rate with your current lender, saving you the hassle of digging into those refinancing documents.
  4. Get your property valued, especially if it has been over 12 months since your last valuation. Get in touch with your valuation officer before contacting your lender.
  5. If you are determined to move forward with your refinancing plans, the next step is to start the application process and credit analysis. The focus should be on meeting the lender’s eligibility criteria.

The length of the refinancing process depends on the prospective lender and can range from 7 days to as long as 60 days. It may take more time if you are changing from your present lender to a new one. Common costs may be applicable, including discharge/settlement, application, valuation, ongoing, and breakout or exit fees.

There is no need to worry about your credit scores being affected by refinancing unless you are a serial refinancer. A formal credit enquiry is needed and remains on your credit history. 

Paul Petersen