When, why, and how to refinance your mortgage
Thinking of refinancing? Discover the ins and outs of the process and whether it could be right for you.
Refinancing a mortgage can be complex. Making the right decision takes time, research, and a good amount of forward-planning.
Refinancing is the process of transferring your home loan from one lender to another lender. When you refinance, you’re essentially paying off your existing loan, then taking out a new loan at a different lender.
Common reasons to consider refinancing
There are several reasons why people might want to look into refinancing their home loan, including:
- locking in a more competitive interest rate
- taking advantage of another bank’s products or services
- reviewing your loan’s structure
- or being able to borrow a larger amount.
The best time to think about refinancing is towards the end of your current loan’s term, or when your financial circumstances have changed. Perhaps your income has significantly increased, or you’re looking to borrow more to buy a new house or investment property.
How to refinance your mortgage
Step 1: Consider your reasons for refinancing
You need to ask yourself what are the reasons for one to consider refinancing?
Are you unhappy with your bank?
Do you want a better rate?
Do you want to borrow more?”
Your goals might be better achieved by restructuring or refixing. It’s important to make sure refinancing is the best solution.
Step 2: Explore the costs of refinancing
Refinancing a mortgage can come with costs. These costs can include:
- legal fees
- early termination or repayment fees on your current loan
- any cash reward clawbacks (when you have to return your cash rewards) from your existing bank
- new house valuation fees – the bank will usually organise this for you but you will be responsible for the cost.
Tally up every possible refinancing expense to make sure the benefits of switching outweigh the costs.
Step 3: Do your research
Once you’ve looked at your reasons and possible costs, it’s time to do some research.
It can be tempting to focus on rate-shopping, but Simon encourages looking past interest rates alone. We are experts in this and can easily work out the benefits and pitfalls of switching for you as we work with over 40 lenders. Some banks may have additional offers, such as cash contributions or no application fees, so it pays to compare more than just interest rates.
Step 4: What happens next
If you decide to go ahead with refinancing, here’s what generally happens next:
- You’ll fill out a loan application, provide bank statements, proof of income and anything else the lender requires.
- Your new lender will decide whether to approve the loan. (We can generally give you an early indication based on our experience and our fact find with you, whether there are any reasons that the refinance through the new lender may not go through)
- If the loan is approved, the lender will send you a letter of approval outlining your new terms and we will ensure that you understand the approval conditions and the new approval is in line with your financial goals and refinance outcomes.
- You’ll work with a lawyer to sign any necessary documents for the new home loan.
- Your mortgage will officially be refinanced.