If you’ve been paying off your home loan for a few years and have built up some equity, it might be time to have a look at your home loan and see if it’s still the best package for you.
If not, it’s time to look at your options.
One of those options is to refinance your loan.
Refinancing simply means getting a new loan, either from your current lender or a new lender.
People refinance for a range of reasons:
- to access the equity in their property for renovation purposes,
- their current lender can’t match the rate another lender might offer,
- the features of their current mortgage no longer suit them, or
- there are better features on another package elsewhere
- consolidating debt (rolling a personal loan, car loan, or credit card debt into your home loan to take advantage of the lower interest rate), or
- engaging in a debt recycling strategy (borrowing to buy shares, for example), or
- you’re simply not happy with the service your current lender is providing.
How does refinancing your home loan work?
There are some basic steps to refinancing your home loan.
This is how refinancing your home loan works:
Do your homework
Assess your current situation, understand the pros and cons.
Are you a permanent employee (casual workers and self-employed have a harder time getting approvals) or have recently had a pay rise?
Have you got a good history of repayments?
Is your home loan coming to the end of a fixed-rate term?
What is your current rate?
What costs will you incur, including exit fees, mortgage discharge fees, new loan establishment fees, any upfront fees, and ongoing fees, not to mention any government fees and charges.
This will help you arrive at your potential borrowing capacity (an expert mortgage broker is the best person to help with these questions).
Also, take into account the amount of equity you have and whether this will trigger LMI again (lenders mortgage insurance, which happens if your equity is less than 20 per cent of the total loan value).
Also, think about the additional time this will add to your loan.
Are you prepared to add more years to the length of the loan?
Applying
Once you’ve made an informed decision about the home loan product you would like, you can begin the application process.
This is as rigorous and detailed as the first time you applied for your home loan because you are effectively applying for a new home loan – this is not a top-up application.
It’s important that you understand the application process and what is really taking place so you don’t underestimate the complexities of the process.
Again, it’s a good idea to have help here, to make sure all your Ts are crossed and your Is are dotted.
A word of caution – don’t apply for more than one loan, hoping to take a scattergun approach; also don’t apply for more than you absolutely need so as not to risk rejection.
And don’t apply without being confident of a successful outcome.
Multiple applications can heavily impact your credit rating.
The best-case scenario is one application that nets a successful result.
Settlement
Once you have been successful, the next step is the settlement process.
Your new home loan will be used to pay off your current home loan.
Your bank will submit a ‘discharge of mortgage’ form to the relevant government department (the Land Titles Office or similar, in your state or territory) and this will close your old home loan account.
Your loan documents will tell you what your new repayments are and when you will begin the new loan repayments.
Make sure you understand the detail in this step.
The best way to refinance your home loan
The best way to refinance your home loan is the way that most ensures success (bearing in mind that nobody can guarantee a successful outcome except the lender).
Refinancing is a very different process to topping up your existing loan product. 
For many, who have a good relationship with their lender, the top-up loan process may be simpler and achieve the same goals.
The best way to move forward with refinancing is with an expert guide by your side, someone who can advise you of the pitfalls and how to avoid them.
This is why the homework step is so important.
It ensures you accurately understand your current position and how it could be improved (or not) by refinancing versus getting a top-up loan.
For some, a top-up loan is a simple push of the button with the current lender followed by a phone call and a couple of forms.
It’s simpler and often quicker.
But seeking advice on this step will help you avoid the common mistakes that many make when refinancing their home loan.
ALSO READ: Mortgage Prisoners: Most Aussie homeowners want to refinance but can’t
