Is refinancing right for you? Here’s what you need to know
You might hear people talking about refinancing, but you aren’t sure whether it’s something that applies to you. Refinancing can be a good step in your financial planning. Like every step towards buying your own home, it pays to consider your options. Here’s our guide to taking the next step on your home ownership journey.
Understand what refinancing means
To put it simply, refinancing is the process of taking your home loan to a new financial institution. People refinance to get a better interest rate or access to different loan features better suited to their current circumstances. After spending a few years paying down your current home loan or following a positive change in financial circumstances, you might be in a position to refinance your loan. It’s all about finding what works for you and your situation.
Work out why you want to refinance
There are many reasons people refinance their loans. Achieving even a small reduction in interest rates can lead to big savings over the life of your mortgage. Different loan features such as an offset savings account (which can help reduce your home loan interest), a redraw facility (which allows you to access any extra repayments you’ve made) or the ability to make fee-free additional payments may benefit you. In some cases, refinancing can also help you get all your accounts in one place, making life a little simpler and maybe a bit cheaper.
Check to see if you are ready
If you have a good repayment history and a significant amount of equity in your home, you may meet the lending criteria of other lenders and be ready to make a move. At HomeStart, we know that we’re just the start of your home ownership journey. When you are in a position to move to another lender with terms that better suit your current needs, it also allows us to continue helping those who need it most. It is important to seek your own independent financial and/or legal advice before making decisions about your financial needs.
Find another lender
If you are unsure about what is involved with refinancing or are worried that it’s too difficult, talking to a mortgage broker, or contacting another lender directly can help. You can find a broker close to you with our handy find-a-broker search tool.
Compare your current loan with what else is on offer
Refresh yourself on the details of your current mortgage, including interest rate and break fees if you are on a fixed interest rate. Once you have all the details, you can compare offers from various lenders, paying close attention to interest rates, loan features, fees and terms. You can also calculate the costs of refinancing, including any exit fees from your current loan, application fees for the new loan, valuation fees, and legal fees, and check that the benefits of refinancing outweigh the costs.
Take the next step on your home ownership journey
If you decide to refinance, you will need to submit an application to the new lender. You will need documentation such as proof of income, details of your assets and debts, and the value of your property. If your new loan is approved, your new lender will book a time for settlement, which is when the new lender pays off your existing loan and opens your new one. After that you will begin making repayments to the new lender based on the new loan terms - and hopefully enjoy more flexibility or savings in the long term.Want help figuring out your next steps? Use our Find-a-Broker Tool or get in touch with our team for guidance.