How to Refinance your Home Loan

How to Refinance your Home Loan

How does refinancing work?

Refinancing your home loan is the process of getting a new loan to replace an existing mortgage. It might be with the same lender or a different one, but it’s secured by the same property – so it doesn’t involve moving or selling.

Refinancing might be a good strategy for people who:

  • Want to get smaller debts under control by consolidating them into their home loan
  • Have found a lower interest rate and have reviewed the comparison rate against their existing rate, as well as considering any break fees or other costs associated with switching loans. Even a 0.5% reduction could save a significant impact over the life of the loan – but make sure you’re looking at all the information so you can make an informed decision that will meet your needs
  • Want to use their equity to finance an investment property or renovations.

Can I refinance if my repayments are in arrears?

This is a conversation best had with a lender, or potentially a licensed financial or tax advisor depending on your circumstances. Not all lenders will consider applications if an applicant has fallen behind on mortgage repayments, has a poor credit score or previous bankruptcy, or defaulted on a debt.

The good news? Pepper may be able to help with refinancing even if you’re in arrears.

Steps to refinance your Home Loan

Refinancing a mortgage might be simpler than you think – and the money saved could be substantial – making the time it takes worthwhile.

This guide can help take the pain out of the paperwork. Here are some top tips to consider when thinking about refinancing.

Step 1. Do your research – review and compare home loans

It’s likely you’ve started thinking about refinancing after seeing an ad for an attractive looking interest rate – but make sure you have thoroughly researched what’s on offer, and look at a few others to compare. It’s important to understand things like upfront and ongoing fees and charges, the features of the loan, and the comparison rate. The comparison rate will help give you a clearer indication of the true cost of a loan, as it includes the interest rate, and most fees and charges relating to a loan, reduced to a single percentage figure – use this to compare home loan comparison rates during your research period.

There could also be key features you want included in the new loan - like an offset sub-account - so be sure to compare home loans online and work out which option works for you.

Step 2. Gather all the documentation you might need

Step 2. Gather all the documentation you might need

When you approach a lender, they will need you to provide documentation for things like income, accounts, etc. Starting the process with all financial documents in order can make the rest of the process easier.

  • Gather recent pay slips or proof of income, bank statements, credit card and loan statements, to work out monthly expenses.
  • Make a note of current loan repayments, interest rates (including comparison rates), ongoing fees, and any discharge fees or break costs.
  • Now that you have an idea of how much you need to borrow, work out how much you can borrow – use our borrowing power calculator, or talk with a lending specialist to talk through what you need, and what you can afford.
Step 3. Talk to your shortlisted lenders or broker

Step 3. Talk to your shortlisted lenders or broker

After finding the mortgage that ticks all the boxes, it’s then time to apply for a home loan. This can be done with the help of a mortgage broker or directly via the lender; depending on the broker or lender chosen, either in-person, over the phone or online. This will require the same type of information as applying for a new mortgage such as property details and income and expenses, as well as details of the existing loan.

The lender may provide conditional approval while they do some further checks – this should be provided to you with all conditions clearly listed. These conditions will depend on your unique circumstances, but might include things like a property valuation or the provision of pay slips. After this, a formal loan approval can be provided.

Step 4. Make sure you understand the loan documents before signing

Step 4. Make sure you understand the loan documents before signing

It’s important to read the loan agreement carefully and ensure that all terms and conditions are clear to you.

Top tips:

  • Never be afraid to ask for clarification on contract terms or clauses – it’s important you’re comfortable with what you’re signing, because this is a big decision.
  • Don’t feel pressured to sign anything you don’t agree to – if you decide you are not comfortable with the terms of the loan documents or are not satisfied with the assistance provided by the broker/lender, you are allowed to walk away.
Step 5. Settlement

Step 5. Settlement

The new lender will confirm the settlement date, which is the date the mortgage officially switches from one lender to another, or to a new product if staying with the same lender.

Keen to know more? Your home loan is likely to be one of the biggest financial commitments you’ll make. Read our Ultimate Guide to Refinancing and decide if your home loan still works for you.

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