How To Refinance Your Home Loan

April 20, 2018

How To Refinance Your Home Loan: From Start to Settlement

Switching to a new loan can be one of the smartest financial decisions you ever make. If you know what you are doing.

You need to know how to refinance so your new loan works for you and your finances. Otherwise, you may end up going through the process, spending a lot of money on refinancing costs, and realising you made a mistake or missed out on an opportunity because you rushed into your new loan without comparing all your options.

Sure, interest rates may be lower than your current rate right now. Or, maybe there are plenty of attractive refinancing rebates and other offers out there to sweeten the deal. But, you’ll gain the most from a new mortgage if you know how to optimise the refinancing process for your individual needs and unique financial situation.

Think of it like this. A rebate could save you a few hundred dollars. A smart refinance, however, could save you tens of thousands in the long run.

Ready to get started? Use these steps to help you refinance the smart way.



Evaluate Your Current Mortgage

The first step to knowing how to refinance and get a competitive deal is to fully understand the details of your current mortgage so you know if now is a good time to refinance or not. Here’s what you should look for:

  • What interest rate are you paying right now?
  • When will your mortgage be paid off? Calculate the month and year.
  • What features does your current loan have right now that you are using – like a free offset account or a financial package with your lender? And, which do you feel like your current loan is lacking?
  • Will you have to pay any exit fees or break costs, for example, if you are leaving a fixed rate mortgage too early? How much would you have to pay?
  • What ongoing fees are you paying on your loan? Total them up to help you compare what you could save if you switch to a different loan with lower fees.

When you have all these details written down, you’ll be able to easily see the difference between your existing loan and a new one.

Where a lot of borrowers lose money is they overlook one or two details, for example, focusing on getting a lower rate but neglecting to add up how much the monthly and annual fees of their new loan will eat into those interest rate savings.

Know exactly what you are working with now so you can definitely switch to something better.


Calculate Total Current Debt

Whenever you apply for financing, it’s important to assess your debt levels. If you are carrying too much debt in relation to your assets, it can make it harder to get a good deal on a new loan.With refinancing, you also have a golden opportunity to make managing all your other debts easier.

For example, if you want to refinance to cover the costs of a remodel or home repairs, you can include the loan for your renovation in your new mortgage and take advantage of the lower home loan rate. You can also pay off existing credit card debt so you can consolidate your debts into one easy payment.

Once you have a total amount of your debt, divide it by the current value of your home. This will provide you with an LVR number that will reveal whether or not you are likely to be required to pay Lenders Mortgage Insurance (LMI). Borrowing more than 80% of LVR, you’ll have to pay LMI again.

If you have to pay LMI when you refinance, you may want to wait and pay down your mortgage until your LVR improves. Paying LMI when you refinance can increase the overall costs of switching your loan significantly.


How to Refinance for Your Needs

The next step is to figure out the kind of mortgage you want. You know what you have, and probably have a good idea of what you would like.Maybe you want to refinance to a fixed rate mortgage to lock in a lower interest rate and predictable repayments for a set time period, or you want a line of credit loan to help meet other financial goals. Or, you may want a cheap variable loan with features to help you pay down your mortgage faster.

Now you can start to search the market to see what’s available. Lenders or your mortgage broker can advise you on how to refinance with the mortgage deals you are looking to get.

As you look at how to refinance and get a better deal, be sure to look at what other lenders have to offer. Interest rates, features, and fees will vary, and so will the offers. Knowing how to get what you want includes understanding the risks and benefits and the costs involved with any potential mortgage. This means short and long term.


Fill out the Application

After finding the right deal, it is time to put in an application. You have completed all the work necessary to find out how to refinance, now it is time to apply for it. Before you fill out the actual application, you need to complete the required paperwork. Get a list from your potential lender of documents you will need. Most likely, it will take some time to collect it all together.

Wait for the Bank’s Approval

The bank will carefully look over all your documents. This can take a couple of days or a few weeks, depending on the complexity of your application and the bank itself. Be prepared to wait. Your lender needs to take the time to carefully assess your creditworthiness and to decide what kind of terms they are prepared to give you for your refinanced loan.

Settlement Day

After obtaining all the papers needed and approving your new loan, a date for settlement will be determined. Old debts are paid, including the old mortgage, and any money you asked for will be made available to you.Settlement day is always a big relief for homeowners. Congratulate yourself. You took the time to learn how to refinance, got what you needed, and are on your way to enjoying a mortgage that better suits your needs.

Perhaps one of the fastest ways to getting the right mortgage is to hire someone who is an expert on how to refinance. A Refinancing Home Loan Consultant can help you obtain a competitive mortgage by providing independent advice on the right deal for your individual needs.

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