Guest author: Kate Browne is Managing Editor at Finder.
Refinancing – it’s no one’s idea of fun. It tends to be associated with mountains of paperwork and endless back-and-forth with the bank. But before you put the whole thing in the too hard basket, here’s some good news. The process these days in practice is rarely as complicated as it sounds in theory.
For those who aren’t in the know, refinancing is when you replace your existing home loan with a new one with another financial institution. This gives you the opportunity to modify your loan to suit your changing lifestyle needs. You might want to save money under a lower rate, shorten the term of your loan or refinance to free up some extra cash to pay for a renovation, a new car or even your kids’ education.
If you’ve had your eye on a more attractive home loan of late, it might be time to check out ASIC’s moneysmart making the switch. Here’s a step-by-step guide to help you through the process, and we promise, you’ll be surprised by just how easy it is.
The first step is to develop a clear understanding on the reasons why you want to refinance and how refinancing may help you achieve your goals. There are many The Benefits of Refinancing Your Home Loan and more reasons to switch beyond price, such as ethics, service and relationships. So it is important to consider what elements are the most valuable to you before making the decision to switch.
The next step is to take a look at your current loan, which includes the type of account you have and how much you are paying in interest rates, fees and ongoing charges. You can check this in your internet banking on or on your statements. If you are in any doubt, just call your lender and they can walk you through the details.
You need to pay attention to the three Fs when comparing: fees, features and flexibility. Though some lenders might be offering significantly lower interest rates on the surface, this shouldn’t be the only feature you take into account. Your access to support and service can be important too. It’s also a good idea to read up on any loan features being offered, like an offset account or redraw facility to help you understand how they impact you mortgage. You want to make sure your new loan offers flexibility as well, like extra repayments and no early payout fee.
Once you have a feel for what else is out there, speak to your lender and see what they can do for you. It’s much easier for banks and lenders to keep their current customers than it is to acquire new ones, so they’re pretty motivated to keep you happy! If you call to negotiate your interest rate, you’ll usually be transferred through to a retention team, whose job it is to assess your current interest rate and see if it can be adjusted. They can also talk you through any other loan products on offer that may be more suitable to your current needs.
Once you’ve considered all your options, it’s time to weigh up the cost of switching lenders (unless you decide to stay with your current one). Calculate the cost of exiting your old loan, and assess any upfront costs you’ll face moving over to a new lender. There are plenty of tools, such as finder’s online mortgage calculators that will do the hard yards for you. Upfront costs can include an application fee, a settlement fee, a valuation fee and registration costs, but lenders will often sweeten the deal with cashback offers or other bonuses, just make sure you ask you lender if they are willing to help you with the costs to refinance!
Almost every lender will charge a discharge fee if you decide to refinance. The good news is that it’s usually no more than a couple hundred dollars (small change when you weigh this up against the value of your new bank). Keep in mind that if you have a fixed rate loan, break costs may also apply which can vary depending on who you bank with. The easiest way to find out is to call your lender.
Once you’ve decided to switch, it’s time to apply for your new home loan. You’ll need to provide documentation confirming your personal details, financial information such as your income, assets and liabilities, and details of your mortgaged property. Approval generally takes anywhere from a day to eight business days.
As part of the process, your new lender will communicate with your old lender to discharge you from your previous home loan. They’ll exchange all the necessary documentation and take care of tricky things in the background. Once this is done, your new home loan will reach the settlement stage. If all goes smoothly, on average you should be able to get from application to settlement within a couple of weeks!
Refinancing your home loan doesn’t have to be an ordeal if you do your research first and know the process. After you’ve switched, make sure you’re still conducting regular home loan health checks every 18 months or so to make sure you’re still getting a good deal. But once you’ve made the move you’ll wonder why it took you long to do so. So you can, sit back relax and know your loan is with a bank that suits your needs and offers great value.