Home Loan Refinancing allows Australian homeowners to replace existing home loans with new ones with better terms and pricing. As interest rates rise in 2023, many borrowers explore refinancing to save money on expensive mortgages.
What is Home Loan Refinancing?
Simply put, refinancing refers to paying out your current home loan by taking a new mortgage with updated loan features and terms from the same or different lender.
You would commonly refinance your mortgage to:
- Lower monthly repayments – Refinancing to a loan with lower interest rates reduces the repayment burden. Saves thousands over loan tenure.
- Consolidate debts – Combine multiple expensive debts like personal loans, credit cards etc. into a single home loan to save on interest costs.
- Access equity – Cash out built-up equity in your property for home renovations, dream car or other personal investments.
- Get better loan type – Switch from variable interest rate loans vulnerable to rate hikes to fixed rate home loans to lock in low rates.
- Move to non-bank lenders – Bank lenders have tightened lending policies after COVID. Non-banks still lend to borrowers with good credit history.
Understanding the Home Loan Refinancing Process in Australia
Though most refinancing situations differ based on lenders and borrower profiles, here are the standard key steps:
Step 1: Refinancing Needs Analysis
This involves a comprehensive analysis of your current home loan versus alternatives considering your financial situation, goals and credit standings. Analyze rates, fees and features between your existing lender and new options to estimate overall savings from refinancing.
A mortgage broker can compare loans available in the Australian market to recommend the optimal one that suits your needs.
Step 2: Submit Refinancing Application
If refinancing looks beneficial, submit a home loan application with updated paperwork to your chosen new lender/broker. This includes bank statements, income proofs, employment details etc. Similar to availing a new home loan.
Step 3: Securing Home Loan Approval
The new lender will thoroughly verify your documents, assess eligibility, and decide the maximum loan amount and interest rates applicable based on credit score and property value assessment via professional valuation.
Step 4: Conveyancing and Loan Settlement
Your conveyancer handles all legal paperwork and liaises between current and new lenders to repay and close your existing mortgage on the mutually agreed settlement date. This shifts your home loan to the new provider.
Step 5: Account Activation and Notification
Post-settlement, your new lender activates the home loan account. You begin making the revised loan repayments on your refinanced mortgage. Also, notify relevant parties like insurers about your updated home loan account.
The entire refinancing process typically takes 6-8 weeks from application to completion.
Who Benefits Most from Home Loan Refinancing?
Though any Australian homeowner with an active mortgage can potentially refinance, it distinctly benefits those in the following situations:
- Paying expensive interest rates – If your current mortgage has interest rates way above average charged to similar borrowers, refinancing to cheaper rates proves worthwhile.
- Struggling with loan affordability – Are your current variable loan repayments too high to manage? Refinancing to a fixed rate or lower principal could help.
- Credit history improvement – Those who have improved their credit score and history since availing their original home loan usually qualify for lower rates via refinancing to a new lender.
- Major equity accumulation – Long-term owners who have paid down loans substantially can cash out equity through refinancing for expenses like home improvements.
- Changed family situations – Relationship breakdowns commonly need one partner taking up a fresh mortgage in their name alone via refinancing the jointly owned property.
- Rising interest rates – Existing borrowers on variable-rate loans can lock into fixed-rate loans in a rising-rate environment to protect against exponentially growing repayments.
Vital Aspects to Consider Before Refinancing
While refinancing helps optimise home loans, consider a few vital factors like:
- How long will you stay? Refinancing costs like lender fees and property valuation charges get recovered over 3+ years of ownership through interest savings. Consider your plans.
- Will savings outweigh costs? Factor in loan prepayment penalties, stamp duties, conveyancing charges etc. before deciding the refinancing viability.
- Tax deduction impacts. Will changes in lenders/loans alter existing tax breaks enjoyed on your current home loan? Consult an accountant.
- Credit profile stability. Have you managed loan repayments diligently without credit blips since your last mortgage application? New lenders reassess!
Refinancing Process Step-by-Step
Now that you understand the basics, let’s go step-by-step through the detailed process:
Step 1: Refinancing Needs Analysis
- Analyse Current Loan Terms
Review principal outstanding, interest rates, and years left on your current home loan term. What are existing monthly repayments? Next, gather intel on better products in the market.
- Assess Your Goals
What’s the objective behind refinancing? Is it purely a monthly repayment reduction? Or accessing equity for other needs? Other goals? Understanding needs to help identify suitable products.
- Compare Alternate Loan Terms
Work with a good mortgage broker to identify home loans that meet your parameters. Compare interest rates, fees and features between existing loans and alternatives to estimate potential savings from refinancing.
Step 2: Submit Refinancing Application
- Prepare Paperwork
Collate all documents needed like bank statements, employment proofs, current mortgage statements etc. for the loan application. Double-check if anything needs updates or revisions.
- Choose New Lender
Based on product features, rates and overall savings, choose your preferred lender for the refinanced home loan. Often existing banks match offers to retain customers.
- Submit Completed Application
Work with a broker or directly apply to the lender’s home loan team. Pay application fees. Make sure the application accurately captures your financial situation.
Step 3: Securing Home Loan Approval
- Lender Scrutiny
The lender will thoroughly verify submitted documents, and check affordability via income proofs before approving the maximum loan amount.
- Valuer Assessment
The lender may appoint a registered valuer to assess the current worth of the property being refinanced. This decides the maximum loan amount they will provide.
- Rate Lock & Formal Approval
You lock interest rates prevailing on approval day. Lender issues formal home loan approval letter detailing loan amount, interest rate, repayment details etc.
Step 4: Conveyancing and Loan Settlement
- Conveyancer Appointment
Appoint a registered conveyancer to handle legal paperwork and loan reporting for refinancing an existing property. More critical for jointly-owned homes.
- Discharge Existing Mortgage
The lawyer oversees the process where your existing mortgage over the property gets discharged once it gets fully paid out on settlement.
- Settlement Execution
On a mutually agreed date, the outgoing lender is fully paid their dues and the new lender releases funds to the customer securing the property through mortgage.
Step 5: Account Activation and Notification
- New Loan Account Activation
Post-settlement, your new mortgage provider activates the home loan account in your name. This starts the loan tenure.
- Insurer and Tax Office Intimation
Notify insurers providing home and mortgage insurance about your new lender for coverage. Also, inform tax authorities regarding deduction claims.
- Updated Loan Repayments
You begin paying the revised equated monthly instalments on scheduled due dates on your newly refinanced home loan account.
Key Takeaways
In summary, here are the key takeaways about home loan refinancing in Australia:
- Refinancing helps save money by replacing expensive loans with cheaper alternatives
- Everyone can potentially benefit from refinancing to lower mortgage costs
- It offers multiple rewards like reduced repayments, equity access, better loan types etc.
- Follow the step-by-step process for a smooth loan changeover
- Carefully assess if potential savings outweigh refinancing charges
- People staying long-term in homes gain the most from refinancing
Home loan refinancing often helps Australians optimise home loans for the better. But cautiously assess aspects like taxes, property valuations etc. to ensure it improves loan affordability. Consulting brokers add expertise to navigate refinancing intricacies. With prudent planning, refinancing proves a great way to maximise mortgage savings in Australia!
