August 15, 2017
If you are unclear on how to refinance your home loan, you’re not alone. From comparing rates and loan features to all that paperwork, the whole process can seem intimidating and even a little confusing. But, when you stand to get a better loan or lower your monthly repayments, the financial benefits make it well worth the effort. To help simplify your mortgage refinance, use this 7-step guide for smooth financial sailing.
Step One – Assess Your Current Mortgage
Before shopping around for a new loan, you need to understand what you are working with right now.
- What exit or discharge fees will you have to pay for leaving?
- What is your current interest rate and remaining balance?
- How many months do you have left on your current mortgage before it’s paid off?
- Are you paying monthly account fees?
- Are there features you have (or lack) now that you’d like to see in your new loan?
- What are your most important objectives of getting a new loan – to lower your repayments, save with a lower interest rate, unlock equity?
Write down the answers to these questions. You’ll be able to get a clear idea of how refinancing will change your payments and how long you’ll be tied to your new mortgage when you can quickly compare where you are at, how your loan will change, and how well a new mortgage aligns with your goals.
Step Two – Check Your Credit File
Another important step before talking to lenders is to investigate your credit file. You can request a copy of your file without impacting your credit. Check for any debts or issues that may create a problem and take steps to clean up your credit where you can. Can you pay off any smaller debts? If you notice that your record has gotten worse over the past 12 months, you may want to hold off on refinancing.
Step Three – Determine How Much You Need
If your credit file is in good shape and you are ready to refinance, the next step is to decide how much you want to refinance for. If you are just switching loans to get a lower rate or to lower your payments with a longer term, then you’ll only need to apply for enough to pay for your current mortgage balance.
If, on the other hand, you want to pay off $7,000 in credit card debts, cover a $10,000 home renovation project, and maybe have $3000 for some extra rainy day cash, you will want to borrow your mortgage balance plus $20,000. Divide this amount by the estimated value of your home to determine your loan to value ratio.
For example, if you want to borrow $280,000 and your home is worth $400,000, your LVR is 70%. With an LVR below 80%, you should be able to avoid paying lender’s mortgage insurance, which will make refinancing more affordable.
Step Four – Start Comparing Loans
With all of your information, it’s time to start searching for your ideal home loan. Consider the features you wanted in step one, such as having an offset account to minimise your interest payments or free early repayments. Compare fees, interest rates, as well as the type of rate – if you would prefer a variable or fixed rate. Try to narrow down your search to your five or six top choices.
Step Five – Time for Professional Advice
Once you’ve done the preliminary work, it’s time to get the help of an expert. You can use a mortgage broker or an online mortgage specialist to help you search for the best loans for you. You don’t have to seek professional guidance, but often the objective insight of an expert, combined with their access to different lenders, will allow you to make the most informed decision.
Step Six – Get Your Paperwork Ready
Next, gather all your paperwork. Most lenders will require a standard list of documents. Have these ready, and your application process will be so much smoother.
- Personal identification such as your driver’s licence and birth certificate
- Copies of your previous 12 months of mortgage statements
- Copies of 6 months’ worth of financial statements (bank, debts, investments)
- Income verification (tax returns, pay slips)
Step Seven – Apply for Your Loan
With all that research and preparation, you are ready to apply for your new home loan. Once you submit all your documents and signed paperwork, your lender will have a licensed valuer come out to appraise your home. After the valuation is complete, you’ll get your formal approval. Your new lender will pay your old home loan, take ownership of the mortgage, and the former account will be closed. Then, you can start paying down your new mortgage and moving ahead towards your financial goals.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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