How to refinance a home loan?

What is the concept of refinancing?

Refinancing refers to the procedure of transferring your existing home loan from one lender to another.

When you're in the process of obtaining a new mortgage with a different lender, you'll come across various loan options. To fully grasp these options offered by each lender, thorough research is essential.

In this article, we present a step-by-step manual on how to refinance your home loan, highlight the advantages of refinancing, and provide tips for a streamlined experience.

Advantages of restructuring your home loan

Before delving into the mechanics of refinancing your home loan, it's vital to establish the reasons behind your decision. Some key motives for refinancing your home loan include:

Cost savings: By securing a lower interest rate and/or reduced ongoing fees, you can decrease your mortgage payments and accelerate the repayment of your home loan.

Payment reduction: Extending the loan term can lead to lower monthly payments and higher disposable income.

Equity access: You can tap into the accumulated equity of your home for investing in property, managed funds, or home improvement projects.

Consolidation: You have the option to merge high-interest loans, such as credit card debts and car loans, into your home loan refinance, enhancing your cash flow.

A step-by-step guide to home loan refinancing

Evaluate your current home loan

How to refinance a home loan? Start by assessing your present circumstances to determine whether obtaining a new home loan is feasible and advantageous. It's crucial to ensure that refinancing aligns with your best interests.

Situations, where home loan refinancing could be beneficial, include:

If it has been a while since you reviewed your mortgage terms, and you can negotiate improved rates and terms.

When your fixed-rate loan term is nearing its end.

To release equity from your home for potential investments.

Research and compare lenders

Proceed to research the available home loan alternatives to gauge the potential savings from refinancing.

One approach is to directly approach lenders to explore refinancing options. While this gives you direct access to lenders and their loan offerings, it can be a time-consuming process.

Alternatively, you can consult a mortgage broker who will review your home loan and present you with various options tailored to your requirements and financial situation. They will also assist you throughout the application process, aiding in document collection and form completion.

Calculate potential savings from refinancing your home loan

Several factors come into play when calculating the potential savings resulting from refinancing your home loan.

Interest rates: Is the interest rate on the new loan lower than your current rate? Is it a fixed or variable rate?

Loan terms: If it's a fixed rate, what's the duration of the term? Are rates initially low, only to increase later?

Fees: A loan might feature a low-interest rate, but does it carry high ongoing fees or upfront costs?

Features: What features does the new home loan offer, such as an offset account or redraw facility? Are they comparable or better than your current mortgage?

Costs: Keep in mind that there are fees associated with switching your mortgage to another lender. These costs should be factored in before making a final decision.

Gather the necessary documents

For your application to be evaluated, the lender will need specific information and documents.

Personal details: Typically confirmed through two forms of identification (driver's license, passport, etc.).

Family situation: Details about your relationship status and dependents.

Employment status and monthly income.

Monthly expenses.

Information about your current home loan.

Assets: Including property, investments, vehicles, retirement funds, savings, etc.

Liabilities: This encompasses existing loans, credit card limits, car loans, etc.

Having these documents ready streamlines the application process. Delayed or incomplete information could hinder loan approval.

Submit the refinancing application

Once you've identified the loan product that suits your needs, proceed to submit your application.

The new lender will assess your application and supporting documents. They will also conduct a credit check, focusing on your repayment history, and appraise your property's value. Depending on their procedure, you might receive a pre-approval before the valuation, and a final approval once your home's value is determined.

It's essential to comprehend the terms of your new home loan before submitting the application. Working with a mortgage broker can be highly beneficial, as they will explain the terms clearly. Alternatively, you can seek advice from a property lawyer or financial advisor.

Finalize your home loan refinancing application

Upon approval, you'll receive an offer letter, contract, and documentation outlining your mortgage's terms. Review these materials, sign them, and return them to the lender. Subsequently, the lender will contact your previous lender to transfer the mortgage. With this, the home loan refinancing process concludes, and you begin making payments on your new mortgage.

Timeframe for refinancing a home loan

Typically, refinancing a home loan takes about 4-6 weeks, with a month being the average duration. The speed of processing depends on:

The quality of your application, including the completeness of required documents.

The strength of your application, involving factors like credit checks and repayment history.

The lender's workload, in terms of processing other mortgages.

To expedite the refinancing process, ensure you provide all necessary paperwork accurately and promptly.

Frequency of home loan refinancing

There are no set rules for how often you can refinance your home loan; the decision should be based on financial considerations. Consider the following:

Refinancing costs: Assess whether fees and expenses outweigh potential financial benefits.

Equity growth: Evaluate whether your home's value has increased sufficiently since your last refinance.

Market rates and loan terms: Compare available loan products with your existing arrangement.

Fixed-rate mortgages: Keep in mind that you can't refinance during the fixed-rate term.

Refinancing your home loan with K Partners

For further insights into home loan refinancing, arrange a consultation with our team of specialists at K Partners, a top-rated mortgage broker in Melbourne. Our experts have guided numerous clients in optimizing their financial situations through mortgage refinancing.

Contact us to schedule your complimentary mortgage consultation.