How To Refinance A Home Loan In 7 Steps

Learning how to refinance your home loan can be relatively straightforward as long as you take the time to understand the process and weigh up certain considerations.

Below is a checklist that will hopefully expedite the process, make it as seamless and painless as possible and ultimately help you find clarity around whether refinancing is right for you.

1. Decide if refinancing makes sense

Before you decide to refinance, you’ll need to consider whether it’s the best action plan in your current circumstances.

If, for example, you’re planning to sell in the near future or you don’t have enough equity to avoid lenders mortgage insurance, refinancing may not make sense. Additionally, if the terms and conditions of your current mortgage are good and you have a competitive interest rate, there may be no need to refinance.

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2. Find out if you’re eligible

Once you’ve decided to refinance, you’ll need to check your eligibility. This will depend on the deal you want, but generally, you’ll need to satisfy the same sorts of conditions for things, such as income, that you did with the original mortgage — especially if you want to change lenders.

You may also need to get a valuation on your property to check that you have 20% equity so that your loan-to-value ratio is 80% or less. In other words, the property should be worth at least $500,000 if you want a $400,000 mortgage.

You may still be eligible to refinance if your equity has either not reached this level or fallen below it due to a market downturn. Still, your fees and charges will almost certainly be higher, especially when you factor in insurance.

3. Decide when to refinance

The best time to refinance is usually now or as soon as possible unless you’re trying to improve your equity or you have a fixed mortgage that still has some time to revert back to a variable loan.

If you can find a lower interest rate and are happy with the terms and conditions of a new loan, you may want to act.

On the other hand, if you’re planning to sell your home within the next year, or even two or three, the expenses associated with refinancing may not make sense.

4. Talk to a mortgage broker

Refinancing can seem overwhelming given the number of things to consider, the choice of products on the market and the incentives lenders use to lure customers. For first homeowners especially, it may feel like you must go through the whole mortgage process again, which could hardly be described as fun.

Under these circumstances, it may pay to talk to a mortgage broker who can walk you through the entire process and do much of the heavy lifting for you. Additionally, a good mortgage broker should have a relationship with a number of lenders so they can find the best deal for your circumstances without charge because they’ll take their fee from the lender you end up going with.

5. Talk to your current lender

Before you approach a new lender, it pays to talk to your current lender or, better still, get your mortgage broker to do that for you, assuming you have one. Your current lender will already have all of your information, which means less paperwork. External refinancing will invariably involve more complexity, especially as you’ll need to deal with two lenders.

Looking elsewhere for your refinance may also involve break or exit fees and charges. Additionally, an internal refinance can be more akin to a renegotiation. If you see something on offer from another lender, you can ask your current one to match that deal. If, for example, you see a lower interest rate from a competitor, they may match it if they want to keep your business.

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6. Shop around for the best deal

You can shop around before or after you’ve spoken to your current lender, but you should always try and compare offers to find the deal that will save you the most money and time in the long run.

A mortgage switching calculator can be extremely useful to see which deal saves you the most money. Type in the loan term, the interest rate and the fees attached and see which loan puts you further ahead.

7. Put in your application

Once you’ve lodged your refinancing application, the time you have to wait for a response and for the new mortgage to come into effect will depend to some extent on whether you’ve stayed with your current lender or moved on. Home loan refinancing can take anywhere from four to eight weeks, but it should be at the lower end of that timeframe with your current lender.

The settlement day on your refinance is when your new loan is used to pay out the old one, and the new mortgage commences. Additionally, if you’re switching lenders, the new one usually does all the paperwork for you.