How to refinance your home loan

What are some of the benefits of refinancing your home loan?

There are many benefits to consider when refinancing your home loan. Here are some of the main ones:

• You could get a lower interest rate Some of the current interest rates in 2021 are at the lowest levels we’ve seen in the past 30 years, so it could be worth checking to see if you can save money on your loan. Interest rates aren’t likely to stay this low for long, so it might be worth considering locking in a low rate.
• Pay off your loan sooner When you refinance you may be able to afford to shorten your loan term, potentially saving you thousands in interest.
• Cut down your payments A lower interest rate could also mean lower regular payments. That’s potentially more money in your pocket every month.
• Get new loan features Features like redraw, an offset account and the ability to make additional repayment may be worth considering when refinancing your home. If you don’t already have them, features like this could help you pay off your loan a lot quicker.
• Change to a variable or fixed rate Perhaps your current home loan rate is not best suited to your circumstances. Would you prefer the certainty of a low fixed rate or the flexibility offered by a variable rate loan? Refinancing gives you the opportunity to switch.
• Consolidate your debts Refinancing your home loan could be your opportunity to get all your loans in one place and at a reasonable interest rate – just be careful and make sure you don’t run up the credit cards again once you’ve cleared them. Debt consolidation means that any personal loans, car loans or credit cards can be moved within your home loan, meaning that you’ll repay them at the (likely) lower home loan rate.

Spend some time working out why you want to refinance and the benefits you hope to achieve. It can be easy to be tempted by a low interest rate, but always consider what costs and other restrictions you might be taking on by switching, such as a locked-in fixed rate loan with high annual fees.

How to refinance your home loan

There are generally six main steps to refinancing your home loan:

1. Assess your current home loan
2. Compare home loan options
3. Calculate the costs of refinancing
4. Apply for your new home loan
5. House valuation
6. Approval and settlement

Now let’s look at each of those steps in detail.

1. Assess your current home loan situation

Before you decide to switch, be sure you understand your current circumstances. Think about the things you like about your current home loan, and things you don’t.

• Accessibility: Do you like the way you access your current loan? Is there a great online experience, or do you prefer dealing with someone face-to-face?
• Know your current rate: If you’re looking for a cheaper rate, you need a benchmark to compare new rates with.
• Variable or fixed rate: Do you want to switch between the two or are you happy with the type of rate you’re currently on? It’s important to be aware of any break fees involved if you decide to opt out of your fixed rate loan, as they can be prohibitive.
• Equity in current loan: If you have equity in your current loan, do you want to access it now? Perhaps you’d prefer to put it straight into your new loan and reduce the loan amount, or you could keep it as redraw, so you can cut down your interest payments and still access it easily if needed.

2. Compare home loan options

So, you’ve got full knowledge of your current home loan and a good idea about what you’re looking for in a new one. It’s time to start looking around and comparing loans.

You can do this yourself online or enlist the help of a mortgage broker. iSelect has partnered with Lendi, an online broker platform with the experience and knowledge to help you find a home loan suitable for you*. What’s more, they help with all the legwork for you.

A Lendi broker will require details of your income, expenses and financial commitments to help them find a loan tailored to your needs.

They may also be able to access a better deal for you from your current mortgage provider, so it may well be worth speaking to Lendi even if you’re not planning to change lenders.

3. Calculate the costs of refinancing

As mentioned earlier, it’s important to research any fees you may need to pay to exit your current loan. Your new loan may have some upfront costs that you’ll have to pay too.

A mortgage broker, like Lendi, can help you work out what costs you’ll be up for when you refinance, and that’s important, because sometimes the costs can outweigh the benefits.

Whether you’re refinancing with the same lender or moving to a new one, fees will vary. If you’re staying with the same lender, ask if they can waive some of the fees. Don’t underestimate your ability to leverage your loyalty!

You can use our refinancing calculator to help you crunch the numbers.

4. Apply for your new home loan

Once you’ve decided on your new loan, it’s time to apply for it.

You can often do this over the phone, in a branch, or, if you have a broker like Lendi, they will submit the application on your behalf.

If you’re refinancing with a new lender, you’ll have to provide personal and financial information just like you did when you applied for your original loan.

The lender may require:

• Proof of identity;
• Details of any dependents and your relationship status;
• Employment details (over a number of years);
• Wage slips (proof of your recent income);
• Details of your assets, existing debts and ongoing expenses;
• Superannuation details;
• Your latest Notice of Assessment from the Australian Taxation Office, or if self-employed, three years’ worth of tax returns; and
• Bank statements.

5. Complete a house valuation

Before your new home loan is fully approved, your new lender will need to value the property and see how much it’s worth. This pre-approval stage generally takes about a week.

If you’re changing lenders, your new lender will contact your current lender so they can transfer your information. This is also the time when you’ll have to settle any fees which apply to your old loan such as break or discharge fees.

6. Approval and settlement

Once your application is formally approved, your new lender will likely send you a mortgage contract pack containing relevant paperwork, such as:

• Mortgage contracts: This is the actual contract detailing the loan amount and terms of the loan, repayment type, features, fees and the like.
• Direct debit form: You can choose which account your mortgage payments will be drawn from once the loan settles.
• Terms and Conditions booklet: This will have the detailed terms and conditions specific to your loan and lender.
• Mortgage of Land forms: This is a government document that confirms that the mortgage on your land title is held by your lender.
• Discharge form: This form advises your outgoing lender that you are leaving their loan.

You may also receive less formal documents, like a ‘welcome pack’ confirming all your loan and repayment details.

At this time, a broker can help you make sure you fully understand all the paperwork and documentation that you need to submit. Once you’ve signed the contract, and eventually your old loan is paid off by your new loan, that’s settlement!

Hopefully you’ve got yourself a great deal and will enjoy many benefits from your refinanced home loan.

Think refinancing could work for you?

Remember, one size doesn’t fit all. Make sure you consult a mortgage broker to help you find the solution that works for your circumstances.

Our team at iSelect have partnered with Lendi*, to help you compare a range of different providers. Use our online tool to compare home loans, or give Lendi a call on 1300 186 260 (08:30-18:30).

Last updated: 28/10/2021