A mortgage will be one of the largest – if not the largest – financial undertakings of your life. Depending on your rates, you will spend many years repaying your principal amount with added interest on top, meaning even the slightest rate deduction can save you thousands.
Refinancing your home loan can feel overwhelming given the administrative and application process involved. Fortunately, with the right information and guidance, it’s an excellent way to save money or adjust your mortgage to better fit your current financial situation.
In this guide, our refinancing expert, Luke McKenzie, will explain refinancing, how it works, and what you need to know to make the best decision for your circumstances.
What is Refinancing?
When people talk about refinancing, they’re referring to replacing an existing home loan with a new one, usually with different terms, and sometimes with a different lender. The goal is often to secure a lower interest rate, reduce monthly payments, or switch the type of loan altogether.
By refinancing your home loan, you can save a significant amount of money over time, especially if you can lock in a better home loan refinance rate.
But refinancing isn’t just about lowering payments.
Some people refinance to change their loan term, moving from a 30-year mortgage to a 15-year one, for instance. Others might refinance to access equity in their home, which can be used for renovations, paying off debt, or even investing in another property.
What is Involved When Refinancing a Home Loan?
Refinancing a home loan involves several steps, and it’s important to approach each one carefully.
Here’s a breakdown of what’s typically involved:
- Review Your Current Loan: Start by closely examining your existing mortgage. What’s your current interest rate? How long is left on the loan? Are there any fees for paying it off early? Understanding these details will help you decide if home loan refinancing is the right move.
- Set Your Goals: Why do you want to refinance your home loan? Are you hoping to reduce your monthly payments, pay off your mortgage faster, or access equity for another purpose? Knowing your goals will guide your decisions as you navigate the refinancing process.
- Compare Refinance Home Loan Rates: Not all lenders offer the most favourable financial products, so shop around. A broker can help you find the best home loan rate to refinance while also considering the terms and fees associated with each offer. Sometimes, a slightly higher rate might be worth it if it comes with fewer fees or better terms.
- Get Your Documents in Order: Just as when you first applied for your mortgage, you must provide proof of income, assets, debts, and other financial information. A solid credit score will help you secure the best home loan refinance rates.
- Apply for the Refinance: Once you’ve found a lender offering a good refinance home loan, it’s time to apply. Be prepared for the lender to ask for a lot of information—they’ll want to know everything about your finances to ensure you can handle the new loan.
- Close the Loan: If your application is approved, you’ll move on to the closing stage. You’ll sign the new loan documents and pay closing costs here. After that, your new lender will pay off your old mortgage, and you’ll start making payments on the new loan.
Which is the Best Bank in Australia for Refinancing a Home Loan?
If you’re considering refinancing your home loan, take your time to explore a variety of lending options to find the one that best fits your needs.
Each type of lender has its own set of benefits, and understanding these can help you make a more informed decision.
Traditional Banks
Commonwealth Bank, Westpac, NAB, ANZ—these and many others are often the first choice for homeowners looking to refinance. Traditional banks are well-established, and Australians feel comfortable working with them because of their reputation and the wide range of services they offer. They can provide competitive refinance home loan rates, but their processes might be slower, and their approval criteria can be stricter.
Online Lenders
In recent years, online lenders have become a popular alternative. These lenders often offer lower rates due to reduced overhead costs and provide faster approval processes. They can be a great option if you’re looking for convenience and competitive rates. Still, you may miss out on traditional banks’ personalised service and more robust security.
Working with a Broker
Navigating the refinancing process can be a headache, especially with so many options available, making a mortgage broker invaluable.
Brokers have connections with a wide range of lenders, including traditional banks and online lenders. With these options presented clearly before them, they can help you compare offers, negotiate better terms, and find a loan that meets your specific needs. As such, working with a broker can save you time and money, and they can guide you through the complexities of the refinancing process to ensure you get the best home loan offer possible.
When is the Best Time to Refinance Your Home Loan?
Countless factors go into determining your home loan. Interest rates set by the Reserve Bank, your credit score, the size of your loan, and much more will all contribute to how your lender calculates loan terms.
As such, timing is key when it comes to refinancing.
So, when is the best time to refinance your home loan? The answer varies depending on your financial situation and market conditions.
Consider refinancing when:
- Interest Rates Drop: Lower home loan rates can save you money, making refinancing a must.
- Your Credit Score Improves: A better credit score could qualify you for a better deal.
- Your Home’s Value Increases: More equity can mean better terms or the ability to drop lenders’ mortgage insurance (LMI).
- Your Financial Situation Changes: Major life events, like a new job or a significant raise, might benefit refinancing.
Ask yourself these questions:
- Are rates significantly lower than when I first took out my mortgage?
- Has my financial situation improved?
- Do I plan to stay in my home for several more years?
If the answer to any of these is yes, it might be time to consider refinancing your home loan.
How Do You Refinance a Home Loan?
- Discuss Your Goals: Start by outlining your refinancing objectives with your broker, such as lowering rates, reducing payments, or accessing equity.
- Market Research: Your broker will compare refinance home loan rates from traditional banks and online lenders, presenting the best options tailored to your needs.
- Loan Recommendations: The broker will break down the pros and cons of each option, helping you choose the refinance home loan that best suits your financial situation.
- Application Support: Your broker will help you gather necessary documents and submit your application, streamlining the process and increasing your chances of approval.
- Negotiation and Closing: Leveraging their relationships with lenders, your broker will negotiate favourable terms and guide you through the closing process, ensuring a smooth refinance experience.
Receive Personalised Support to Refinance Your Home Loan Rate with Aspire2 Wealth Advisers
If you’re thinking about refinancing, take the time to explore your options, ask questions, and get advice from professionals who understand the market. Your home is one of your biggest investments—make sure you’re getting the most out of it.
Speak with Luke or another of our experienced advisers today for more information on refinancing and how Aspire2 Wealth Advisers can help.
This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.
