The process of refinancing explained

What do you have to do to refinance a home loan? Replacing one loan with another might sound daunting at first, but the process can actually be quite simple.

*iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Auscred Services Pty Ltd (Australian Credit Licence 442372). iSelect provides a referral to Lendi Pty Ltd, a Credit Representative of Lendi Group Finance Pty Ltd (Australian Credit License 442372). iSelect Mortgages Pty Ltd receives a commission from the Licensee for each new customer account created and for each home loan submitted through this service.

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In this article, we’ll look at how you might prepare to refinance, as well as break down the process step-by-step.

Refinancing doesn’t need to be complicated. The process is straightforward enough: it mainly involves replacing an existing home loan with a new one.

It usually takes a few weeks to get everything approved, though in some cases, it can be as quick as one week.

And while this swift resolution isn’t guaranteed, you can still take some steps to help the process go smoothly.

Step 1: Think about what you need

This one might seem a bit obvious, but it’s still a good idea to ask yourself whether refinancing is a good fit for you.

For instance, some reasons homeowners refinance can be:

  • Lower interest rates
    If the new loan has a lower interest rate, this can help you pay it off faster. Or simply lose less to interest while making repayments.
  • Lower repayment amounts
    This might suit the budget of some homeowners. However, this doesn’t always translate to long-term savings – especially if the loan term is longer.
  • Debt consolidation
    Some home loans can be used to bundle several personal debts. So the amount you owe on any credit cards or loans could be transferred to the new home loan, which typically has a lower interest rate.

However, this all comes down to what you want out of your new home loan.

This could be lower costs or additional features, such as an offset account or redraw facility. Maybe you just want a home loan that better suits your current finances and lifestyle. But no matter your preference, it’s important to be clear on what you need before refinancing.

Step 2: Compare your options

You’ll also need to research your options when refinancing.

This is because every home loan is different. Some lenders might advertise lower rates, while others could offer fewer fees or extra loan features.

So how do you compare these different loans?

Well, one way is to let us help with the heavy lifting. At iSelect, we’ve partnered with Lendi so that you can compare loans from a range of home loan providers. And you can click here to get started.

Step 3: Speak to your existing lender

Even if you find a more competitive home loan, speaking to your existing provider could still be worthwhile.

You might be able to negotiate a better rate on your home loan, especially if your provider is aware that you’re considering a switch.

But what if they’re not able to give you what you need?

At that point, you might wish to refinance with a new lender. Just be sure to weigh the costs of switching against the benefits, and review the details of your new loan.

Step 4: Gather your documents

As part of the application process, your lender will usually ask for some documents. These can include papers such as:

Proof of identity
  • Usually a combination of the following:
    • Birth certificate
    • Passport
    • Driver license
    • Medicare card
Proof of income
  • If you’re a full-time or part-time employee this can include:
    • Payment summary Your most recent payslips
  • If you’re a casual employee:
    • A recent Australian Tax Office (ATO) assessment.
  • If you’re self-employed:
    • ATO assessments and tax returns from the last two years.
  • Proof of any rental income
  • Proof of any Centrelink payments (family tax benefit, pension support scheme, disability support pension, etc.)
Your current home loan statement
  • These are issued on a regular basis by your existing lender.
  • You can often request a current statement from your lender online.
Proof of assets
  • Evidence of what you own, which can include:
    • Properties
    • Vehicles
    • Shares
    • Bank savings
    • Investments
    • The value of your home contents
Proof of loan and debts
  • Evidence of what you owe, which can be:
    • Statements for your current home loan
    • Personal loan statements
    • Credit card statements
    • Records of any other debts

It also doesn’t hurt to get these ready before you apply. By doing so, you could cut down on some significant delays throughout the process.

Step 5: Lodge your application

There are several ways you can apply with a new lender.

For instance, you might do so online, apply through a broker or go into the lender’s branch or office.

But there’s also the option of applying through iSelect in partnership with Lendi, which looks something like this:

  1. You’ll answer a few questions about your circumstances and what you want from a loan.
  2. We’ll give some potential loan options and provide you with a good idea of whether an application for your preferred loan is likely to be accepted.
  3. Once you’ve decided on the loan you like, you can apply online.
  4. A Home Loan Specialist will then guide you through the rest of the process and deal with the lender on your behalf.

As you can see, this can help make the process a little easier. And this gives you time to prepare for the next step.

Step 6: The property valuation

As part of the application process, the lender might enlist a valuer.

This qualified professional will then look over your property to determine its worth.

Often they might do so by inspecting your house in-person. Or they might use property or market data to make an estimate.

This could affect the “equity” on your house – the value of your property vs what you owe on the home loan – for better or worse. Of course, this depends on if it has increased or decreased from the last valuation:

  • If it has increased
    Your equity should also be higher. This may also allow you to borrow more from your lender without having to pay Lender’s Mortgage Insurance (or LMI). To avoid paying LMI, you usually have to have at least 20% home equity.
  • If it has decreased
    This will reduce your equity. If your loan amount is more than 80% of your property’s value, you may also be required to pay LMI to cover the financial risk to your lender.

In either case, you’ll be able to think over any changes to equity before you agree to the new loan.

Step 7: Approval

If there are no further requirements, then your application to refinance will likely be approved. At that stage, there will just be a few final boxes to tick:

  • Review the terms and conditions
    It’s always prudent to read over the terms and conditions of the loan one last time to make sure everything’s in order. Typically, the new lender will provide a copy alongside the letter of offer as well.
  • Your letter of offer
    You’ll be issued a letter describing the details of your new loan (such as the loan amount, interest rate, etc.). You’ll then need to sign and return this letter (or an attached contract) to confirm you agree with the new loan’s terms and conditions.
  • Discharge of mortgage
    You’ll also need to sign this with your old lender to remove them from the title of your property. Depending on your new lender, they might organise this for you too.

With all this done, you’ll then be able to move on to the final part of the process.

Step 8: Settlement

Congratulations! Your new home loan will now be used to pay the old one. From here, your new lender will let you know when the refinance has taken effect and when your new repayments start.

Where can I get started?

If you’re looking to refinance your home loan, we can help with that as well.

At iSelect we’ve partnered with Lendi to make it easier to find a great deal on your home loan*. Click here to get started comparing from a range of lenders online, or give Lendi a call on 1300 186 260.

Last Updated: 07/07/2022