Refinancing is the process of taking out a new mortgage to repay an existing loan: often because there has been a change in your personal or financial situation, or simply because you want a better deal on your home loan.
While this can be with the same lender, it is also common to change to a different provider. Those looking to refinance their existing mortgage are increasingly carrying out much of their research online by comparing home loans to review what the market has to offer.
It’s not uncommon for lenders to handle most of the process once you have made your choice and been approved, so refinancing may be relatively straight forward and less complex than securing your first mortgage.
Why would you refinance?
Refinancing can be a smart way to manage your money. It may give you the option of securing a better deal, consolidating debts, or unlocking equity in your current property, depending on the options you take.
When refinancing, you generally want to increase, decrease, or keep the loan amount the same.
Loan increases may be used to consolidate more debts or release capital for other expenditures, such as home renovations. Home loan rates are lower than those for credit cards, so consolidating your debts into one loan can make repayments simpler and reduce the interest owing each month.
Decreasing the loan amount may reduce the loan term, lessen your monthly repayments and secure a lower interest rate. If you’re decreasing the loan by an injection of a lump sum, it may not always be necessary to refinance. It is a good opportunity nonetheless to assess what rates and terms home loan lenders are offering, in case you find a better deal that is more suitable for your changing needs.
Keeping the loan amount the same suggests that you are likely looking for a better deal. What constitutes a better deal is something that can only be answered by your specific set of circumstances. You may be currently paying for extra facilities you don’t need, have improved your credit score and can now secure a better interest rate, or want to change to a fixed or variable rate to take advantage of market conditions. Whatever the case, comparing home loans online is a great way to start, as you will be able to soon gauge what deals appeal to you.
How does refinancing work?
The first step when refinancing is to check the costs by checking in with your current lender. Depending on the Terms and Conditions of your current home loan, costs here will vary. The next step is often to compare home loan products to establish if you can find a better deal than your existing mortgage. If you’d like help with this process, chatting to one of our broker partners is a great way to get expert advice on what options are available to you.
A broker will also be able to step you through the process of applying to refinance, along with any documentation you’ll require. Once approved, your new lender will send a Letter of Offer and arrange settlement with your current mortgage provider. On settlement day you cease paying your mortgage with your old provider and start repayments with your new lender.