How to Refinance Plus Useful Tips on Refinancing
Refinancing your home loan is a strategic move you can take to enhance your financial well-being. Whether you’re looking to lower your interest rates, change from a variable to a fixed rate, access equity, or consolidate debts, understanding the refinancing process is essential before getting into it. To help you out, we’ll take you through the step-by-step process of how to refinance your home loan and provide you with tips to assist you in making informed decisions on this matter.
What is refinancing?
Before you can begin to learn how to refinance, you first need to understand what it is. When you refinance, you’re essentially replacing your existing home loan with a new one, often with better terms or features. This practice has gained popularity in the past due to the lower interest rates brought about by the pandemic. Recently, it has become a solution for tight budgets and the difficulties the continuously rising cash rate brings with it.
Learning how to refinance opens you up to its potential to help save you money and the chance to align current loans with your changing financial circumstances. To get the best deals and options available to you, however, it’s best if you work with a mortgage broker who knows how to navigate the refinancing landscape with ease.
Steps to Refinancing Your Home Loan
So, how does refinancing work? Here are the steps you need to follow:
Understanding the Current Loan
Before you embark on the refinancing journey, take a close look at your current loan. Evaluate your interest rate, loan term, and repayments. Consider why you’re seeking to refinance and the benefits you aim to achieve.
Preparing for Refinancing
Preparation is key to a successful refinancing endeavour. Review your credit score and overall financial health. Gather documents like proof of income, property valuation, and existing loan statements. Use an online calculator to estimate potential savings and weigh short-term versus long-term benefits.
Shopping for a New Loan
Research is vital when seeking a new loan. Explore various lenders and loan options with the help of an expert refinancing mortgage broker. Compare interest rates and terms, considering fixed versus variable interest rates and introductory versus standard rates. Keep an eye out for additional fees, such as application fees, valuation fees, and legal charges. An expert mortgage broker will liaise and negotiate with your chosen lenders to secure more favourable terms, including lower interest rates and reduced fees.
Applying for Refinancing
Once you’ve narrowed down your options, have a trusted mortgage broker submit your applications to your chosen lender. Provide the required documentation, undergo credit checks, and have your property revalued.
Accepting The Loan Offer – Approval and Settlement
Upon accepting a loan offer, finalise the paperwork and meet any legal requirements. The mortgage broker will notify your current lender about the refinance and coordinate with the new lender to set a settlement date.
Post-Refinancing Steps
After the refinance, take steps to ensure a smooth transition. Close your old loan accounts, set up new payment arrangements, and keep a close eye on the new loan’s details. Regularly monitor interest rates, repayments, and account statements to stay on top of your financial situation.
Potential Challenges and Considerations
While refinancing can offer substantial benefits, it’s crucial to be aware of the potential challenges that come with it. Keep an eye out for early exit fees or break costs from your previous lender. Understand the potential impact that a refinance has on your credit score and carefully evaluate the long-term versus short-term benefits of refinancing. Stay informed about market fluctuations and potential interest rate changes that might also affect your decision.
Expert Tips on How to Refinance
So now that you know how to refinance a home loan, the next thing you need to do is to find ways to get a better deal. You should also know when it’s the right time to refinance and when it’s best to hold off doing so. To help you out, here are some questions to ask yourself before moving forward and a few refinancing tips that can come in handy when you’re contemplating a refinance:
What are the 3 most important questions to ask yourself before you consider refinancing?
When it comes to refinancing, you need to answer the following three things before you proceed:
- Does it make sense?
- Will it improve the loan set-up in terms of the structure or rate and repayments?
- Will I be in a better situation afterwards?
Work with a good mortgage broker and take the time to assess your current personal situation along with your short- and long-term financial goals. This will help you choose an appropriate plan for refinancing and help you get a better deal on your home loan.
When is the best time to refinance?
This is a common question our mortgage brokers get asked. The situation is different for each person, so this is dependent on your individual circumstance. Some people find that refinancing is a good idea when their financial situation has changed. An example of this is when they have more credit card debt or personal loans that are causing cash flow issues.
Another reason why some people consider a refinance is when a fixed rate loan is expiring and is about to go to the variable rate with the same lender. Often, when this happens, the variable rate is going to be higher, so homeowners look for ways to do better. Refinancing is one avenue to take.
11 Helpful Refinancing Tips
To help you find out when you should consider refinancing and to get the best deals when you do decide to refinance, here are a dozen tips that can come in handy:
1. Assess Your Goals – Determine why you want to refinance. Are you looking to save money, access equity, consolidate debt, or change loan terms? Knowing your objectives will help you make informed decisions.
2. Check Your Credit Score – A strong credit score increases your chances of securing better rates. Obtain a free copy of your credit report and address any issues before applying for refinancing.
3. Calculate Potential Savings – Use online calculators to estimate how much you could save by refinancing. Compare the total costs of your current loan with the potential costs of the new loan to ensure it’s a financially sound move.
4. Shop Around for Lenders – Research multiple lenders and their loan products to find the best fit for your needs. This could save you significant money over time by applying for the right lender and loan for your situation rather than getting stuck with a sub-par loan.
5. Understand Interest Rates – Different loan types offer different interest rate structures. Understand the differences between fixed and variable rates, as well as any introductory or ongoing rates associated with the loan.
6. Consider All Costs – Look beyond the interest rate and consider all associated fees, including application fees, valuation fees, legal fees, and ongoing fees. These can impact the overall cost of refinancing.
7. Gather Required Documentation – Be prepared to provide proof of income, property valuation, and other financial documents. Having these ready can expedite the application process.
8. Negotiate with Lenders – Don’t hesitate to negotiate terms with lenders. An expert mortgage broker can often use their long-standing relationships with lenders to leverage better rates and reduced fees depending on your situation.
9. Stay Mindful of Timing – Keep an eye on the market and interest rate trends. Refinancing at the right time can lead to more favourable rates and terms.
10. Prepare for Property Valuation – Understand that your property will likely be revalued during the refinancing process. Ensure your property is well-maintained and presentable to potentially receive a favourable valuation.
11. Maintain Financial Stability – Lenders prefer borrowers with stable financial situations. Avoid making major financial changes, like changing jobs or taking on new debt, during the refinancing process, as this can affect your loan application.
Learn How to Refinance with the Help of Experienced NBHL Mortgage Brokers
Enlisting the support of the seasoned mortgage brokers here at North Brisbane Home Loans while you’re learning how to refinance your home loan is a good idea. Not only do you gain access to a wealth of expertise and a guiding hand throughout the process, but you also get great advice on which options are best for your situation.With this refinancing guide and the in-depth knowledge our mortgage brokers have, you can rest assured that you will be entering the refinancing world with your eyes wide open. Don’t hesitate to harness the power of NBHL’s experienced mortgage brokers. Contact us and let us help you pave the way to more favourable refinancing options.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
