Table of content
Table of content

What is refinance?

Refinancing is taking out a new mortgage to repay a current loan; this is often done due to a financial or personal situation change. Often people will refinance their mortgage to receive a better deal on their home loan that allows them to pay off their loan sooner.

Refinancing could be with the same lender, or it could be with another provider. It is very common to refinance your mortgage to another provider for a new customer offer such as a cashback or attractive fixed rate.

Refinancing is relatively straightforward, but it can be overwhelming to shop for deals online or contact different financial institutes. Once a provider is chosen, it can be further overwhelming to gather all of the paperwork and documents needed for an application. Working alongside a broker can take away all of those stresses as they assist you with all of the above.

Why refinance?

  • Manage your money and save on interest:
    Refinancing is smart if you want to manage your money and save on interest or pay your loan off sooner. It could allow you to consolidate debts, secure a better deal, access equity from your current property or restructure your loans. Refinancing is increasing, decreasing, or keeping the loan the same amount, depending on your situation and financial goals.
  • Increasing your loan:
    May be the option you choose if you want to consolidate debt or access equity for renovations or other expenditures. This is generally the best option as home loan rates are lower than personal loans or credit cards.
  • Decreasing your loan:
    May lower your monthly repayments, reduce your loan term and get you a lower interest rate. If you are putting a lump sum into your home loan, it is not always essential to refinance it, so check with your financial institute.

If you keep your loan balance at the same amount, it indicates that you are seeking a better deal on your mortgage. Receiving a better deal may mean different things, such as a better rate and shorter loan term or features such as redrawing and a credit card with no annual fee. Either way, it always pays to compare your current home loan and see what else is being offered. Remaining loyal to the same financial institution does not always have advantages and can sometimes do you more harm in the long term.

How does it work?

  1. Before you look at refinancing internally or to another financial institute, you must check in with your current lender and get across all of your current details. Find out your interest rate, forecasted loan term, any break costs that may be involved, etc. The costs involved in refinancing will vary depending on the terms and conditions of your current loan.
  2. The second step is to compare your home loan products to see if you can find a better deal than your existing mortgage.
  3. These steps can often be removed when you contact one of our brokers and receive expert advice on what options are currently available. Our brokers will be able to help you through every step of the application process and with any documentation that is required.
  4. Once you are approved by your new lender (or existing), you will receive a letter of offer and arrange a settlement. When settlement day arrives, your loan with the previous provider will be ceased, and you will begin your repayments with your new provider.

Things to check before refinancing

  • Your credit score:
    Refinancing requires a credit application, and the outcome will depend on your credit score. Going for a pre-approval is considered a credit enquiry and will also reflect on your credit file; therefore, it’s essential to check your credit history and score before proceeding with any enquiries or applications. There are many free online resources you can use to check your credit score.
  • Your home available equity:
    Equity is the difference between the value of your home and your loan balance. If the value has risen since you first purchased it, your loan to value ratio will be lower, meaning you will have available equity. If your available equity is less than 20%, you will have to pay Lenders Mortgage Insurance, the same as if your deposit was under 20%.
  • Fees involved in refinancing:
    Depending on the loan type and financial institute, there can be many fees charged, such as an application fee, discharge fee, break cost on the current loan and valuation fees. It’s important to factor in all of these costs when you’re looking at refinancing your home loan elsewhere.