Are you looking for a better interest rate to lower your repayments? Are you planning to buy an investment property or finally considering the renovation you’ve always dreamed of? Well, refinancing might be the answer you were seeking to bulldoze your hindrances.
We compare hundreds of loans from a wide variety of lenders and work with you to find the right loan that suits your individual needs.
What exactly is Refinancing?
Referred by some as ‘loan switching’, refinancing is basically a process of paying out your current home loan by taking out a new loan. This can be done with a new loan from your existing lender or through a different lender.
Refinancing is usually good for those individuals who you find their previous loan not feasible enough for their changed circumstances.
What can you refinance for?
- Renovation and home improvements
- Paying off all debts by rolling them into one loan
- Obtaining a cheaper rate
- To access cash for vehicle or appliance purchase
- To switch from a variable rate to a fixed rate role
Benefits of Refinancing
- Peace of mind with fixed monthly repayments
- Reduced interest rate and monthly payments
- Flexibility to pay off loan quicker
- Consolidation of debts (credit cards, personal loans and other debts)
- Unlocking the equity in your current property to finance your plans
Drawbacks of Refinancing
- At times, short-term costs exceed the long term savings
- Paying interest on the balance for a much longer period
Situations when Refinancing should not be considered
- If there is a costly exit fees applicable on your old loan
- If you don’t have a reasonable amount of home equity which is at least 20% of your property’s current market value (in this case you will have to pay Lender’s Mortgage Insurance)
- If your credit history has a few black marks of missed repayments or overdue bills
Loan Features to Look Out For
With refinancing, you can access additional home loan features such as:
- Flexible repayments and extra repayments to pay off the loan sooner
- Repayment holiday to take a break from repayments
- Offset account to reduce your monthly interest and repayments
- Redraw facility to have cash handy in case of emergency
- Flexible rate options such as split loan or interest-only loan, etc.
- Loan portability when moving from one home to another
Additional costs associated
When you pay off your loan early, say in the first 3-5 years, then exit fees is applicable. It is either a percentage of the loan balance or a fixed amount.
During refinancing, the new lenders often charge a range of upfront fees which include:
- Loan application fee
- Valuation fee for a professional property valuer
- Settlement fee
Lenders Mortgage Insurance (LMI)
LMI is paid by the borrower to insure the lender of any risks that may be associated in case the borrower defaults in his repayments. If you are borrowing 80% or more of your property’s value, then LMI would be applicable to you. Also, LMI is a non-transferable payment, which means that if you refinance you’ll have to pay LMI again.
Stamp duty is the tax charged by the state government on your mortgage and is calculated against your loan amount. If refinancing increases the size of your home loan, you will have to pay stamp duty.
Mortgage Registration Fee
Mortgage registration fee is paid for registering your loan onto the property’s title record to the Land Titles Office or equivalent.
Process of Refinancing
The process of refinancing a loan is very similar to the process of applying a home loan. Still, here are the following steps that usually people follow:
Step 1: Research
Explore the costs, fees or penalties that you might have to pay to your current lender, such as deferred establishment fees (DEF) if you choose a different lender.
Step 2: Consider your reasons
Evaluate your motivation behind refinancing a loan- is it because you are looking for a lower interest rate, accessing equity for emergency cash needs, wanting to switch to a different loan with better product features or consolidate your debts?
Step 3: Pick the right loan
Create a ‘shopping list’ of the features you want and then choose a loan that fits all or most of these features. You can take help from a mortgage broker to discuss your options.
Step 4: Submit the application
The approval process is going to be very similar to your previous loan process unless you’re going for a different lender, in which case you’ll need to provide the following paperwork:
- Recent pay slips
- Documents of your existing loans
- Your latest council rates notice
- Evidence of the building insurance policy
Step 5: Valuation
Valuation of your current properties will be done by the new lender and it is often chargeable, anything between $200 and $300.
Step 6: Finance approval
At this point, your lender gives you a formal or unconditional finance approval and will instruct a solicitor to prepare the loan documents on their behalf and get them approved and signed by you.
Step 7: Arranging settlement
Your new lender will settle your previous loan with your previous lender for establishing a new loan. Once this process is done, you have a brand new loan!
How ARG Finance can help
When refinancing your loan for any reason, it pays to do your homework. Our mortgage brokers will:
- Take an objective look at your individual situation, your goals and your current loan to give you an accurate picture of how much you can borrow and help pick the right loan for you.
- Clarify the costs and the benefits of refinancing and make you understand if it is going to be a profitable option in the long run. Also, you’ll be made acquainted with all the fees associated so that there are no surprises for you.
- Be with you at every step of the way and guide you through the application process whilst streamlining it for you.