Refinancing is likely a term you’ve heard before, but not everyone truly knows what it means and what’s involved.
Perhaps you’ve had your current home loan for quite some time and have seen some better deals in the market recently. Once you’ve taken a loan out, it doesn’t necessarily mean you’re stuck with these terms for the remainder of the loan life.
Refinancing your mortgage can sometimes be good for you in the long-run. We’ve put together a guide to take you through the simple things like what refinancing is, how you can do it and what benefits you can get overall.
What is refinance or refinancing?
Refinancing is basically the process of taking an existing debt in the form of a loan, such as a home, car or personal loan, paying it off and replacing it with a new loan.
You can also consolidate debt by refinancing. This means you could have a couple of loans and you could replace them with just the one.
This process usually isn’t as long as the initial setup of your loan as you’ve already done most of the work when, say, buying your house.
There can sometimes also be some costs associated with refinancing. It’s worth chatting to a professional and assessing your options as to what you might be out of pocket with. If you research and take your time, you can try to avoid these costs where possible by finding the right home loan for you.
Why should I refinance?
If you’re looking to refinance your home loan, it’s worth comparing home loans and their benefits, as well as the current interest rates on offer.
There’s a number of reasons why you might consider refinancing your mortgage or loan:
- Different interest rate types. Perhaps you want to change from a variable to a fixed rate loan.
- Lower interest rates. You might find that loans from the same provider or others may be better than your current loan.
- Better add-ons. Access to flexible repayments, loan splitting, offset and redraw facilities might be a priority for you now.
- Consolidate debt. Life can change, sometimes it can be easier to manage everything with one loan and one regular payment.
You may not have had access to things like an offset account or flexible repayments when you first took out your loan. It can be worthwhile assessing what benefits are available in market at the moment that you’d like to take advantage of.
If you refinance your home loan, you may also be able to receive potential tax benefits if you refinance to access your home’s equity. For example, if you were to access your home’s equity through refinancing your loan to purchase an investment property or invest in something else that would be used to produce income, you may be eligible for tax deductions.
Home equity is the difference between the value of your home and the amount owing on the loan. Sometimes people will refer to this as loan to value ratio or LVR. Your home’s equity increases as your property’s value does, or as you pay off more of the loan, or a bit of both.
This equity can be used to help you refinance to a more competitive interest rate on your home loan, access the money to use it for renovations, investment or to consolidate debt.
How do I refinance my mortgage?
We can’t talk for other banks, but we can take you through what the process of refinancing might look like with us.
Step 1: Compare your home loan
Before you apply for any home loan, it’s worth comparing your current home loan with our refinancing calculator. Here you can look at the remaining value on your home loan and compare with the average market rate versus the home loans we have to offer.
Step 2: Fill in a home loan application
If it looks like we can help you save, that’s great! The next step to refinance with us, is to fill out a home loan application with us.
Step 3: We’ll call you
After filling out the application, we’ll call you back to find out more information and talk you through the process more.
We’ll also let you know if you’ve been approved and what the next steps are.
Step 4: Organise paperwork with your current loan provider
If you’re moving banks, you’ll also need to request a Discharge of Mortgage Authority form from your current home loan provider. This basically is a formal document that your bank can provide to you/us to allow us to liaise with them regarding payouts of your existing loan.
Step 5: Enjoy your new loan
Once all the paperwork and transfers have been done, you can enjoy the benefits of your new loan. Whether it’s access to flexible payments, a better interest rate, offset accounts or more, you’ll hopefully have peace of mind with your new loan benefits.
If you’re interested in refinancing, we recommend checking out our refinancing hub to learn more and compare your options. If you’re ready to refinance your home loan, we recommend calling us on 1300 654 822 to chat to one of our lending specialists.