Refinance your home in 7 steps
We’re taking a look at mortgage refinancing in seven easy steps. Read on to find out whether or not refinancing is right for you.
Mortgages are a 25 to 30 year commitment…and a lot can happen in that time. Your family might grow, your kids will move out, and the economy will have its ups and downs. Chances are that, at some point during the life of your home loan, you’re going to outgrow it.
That’s where home loan refinancing comes in, allowing you to take out a new home loan on a new term with a new (hopefully better) interest rate and pay out your old home loan. Subject to certain criteria, you may be able to re-mortgage for up to 80 per cent of your home’s value and take out money on your new loan to use for other expenses. People often do this to conduct renovations, buy an investment property, consolidate loans, or lock in a better interest rate than their old loan.
If you’ve been considering refinancing your home loan but aren’t sure where to begin, we’ve broken it down into simple steps to get through the process. Let’s take a look…
Step 1: Ask Why You’re Refinancing
Just as you did when you took out your first home loan, you should take your time and consider what you really want out of your new loan. Home loan refinancing may be an option if you want to:
- Save money during the life of the loan with a lower interest rate
- Access more features, such as extra repayments, redraws and offset accounts.
- Use your home equity to borrow more money (to renovate your home or buy an investment property)
- Consolidate your loans.
Knowing why you want to refinance can help you determine certain factors of the new loan, such as the amount and term.
Step 2: Know The Costs
Closing off your existing loan and taking out a new loan can come with some costs. The cost to refinance shouldn’t add additional financial stress to your life. You’ll want to consider:
- Exit fees on your current loan
- Upfront costs to establish a new loan.
On top of the cost of an interest rate, lenders may have establishment or monthly fees, and a lower interest rate may be countered by higher fees.
The true cost of a home loan is expressed in a lender’s comparison rate. What’s a comparison rate you ask? The comparison rate incorporates the fees charged by the lender.
Step 3: Choose The Right Mortgage
Take the time to find a mortgage that suits you and your circumstances. For example, if you’re refinancing because you’re short on cash, you may want to consider a loan with low repayments. Be sure that you:
- Compare the best deals and features you need
- Consider incentives such as cashback.
Lenders will offer plenty of incentives to get you to refinance your loan, including fee waivers, refinance rate discounts, rewards points and of course, cashback.
Step 4: Submit Your Application With The New Lender
You’ll need to have some documents on hand, such as your existing loan details, proof of regular income and a record of your expenses. They’ll also arrange for a valuation of your property to be made.
Step 5: Review And Sign Your Lending Documents
Once your refinance application has been approved, be sure to look over all documents carefully before signing. Upon reading the fine print, you might find some hidden fees, such as honeymoon rates, where the loan appears to give a very low interest rate at first, but the rate increases significantly after a period of time. This is where the comparison rate can reveal the true cost of the loan.
Step 6: The New Lender Pays Off (Settles) The Old Mortgage
After the documents have been signed, your new lender will contact your existing lender and arrange for settlement – where the property title and debt are transferred over to them. It can take between 10 to 20 days for a loan to be closed, and at this time you may be contacted by your current lender about reconsidering. Pay out fees may be applied when you close your loan and these may be rolled over into the new, refinanced loan.
Step 7: Start Paying Off Your New Home Loan – Within A Month Of Settlement
That’s it – you’re done! Your new schedule of repayments will begin. If you’ve refinanced to a higher loan amount, the additional funds will now be available too. You’ll also be able to use the benefits that are tied to the loan, such as offset accounts.
Ready to begin? Talk to GSB Home Loan Specialist to discuss your refinancing options.