Refinancing is the process of moving from your current mortgage on your existing property to another, whether with the same or a different lender. This new home loan then replaces the old one. But what does the refinancing process entail, when is the best time to refinance, and what else do you need to consider as part of the process?
How does refinancing work?
The refinancing process is similar to the original process you undertook when completing your original home loan application. It can also depend on whether your circumstances have changed, such as if you’re self-employed or currently on maternity leave.
A home loan broker can cut through all the noise associated with the refinancing process and oversee the entire journey for you. Get in touch with one of our brokers today to discuss your refinancing options.
When is it time to refinance?
1. Your current home loan term is ending
This is the most common reason for refinancing, as this is usually when your current deal ends and you are automatically moved onto the lender’s variable rate (known as a variable-rate homeloan). You’ll usually need to start the process six months before your existing term ends to avoidlanding on this rate.
2. Looking for a new home loan deal
It’s important that you regularly evaluate your financial circumstances to ensure that your current loan deal still meets your needs, and refinancing may present an opportunity to save money.
Do bear in mind that you may need to pay an early repayment fee (also known as an exit/admin fee) if you’re not at the end of your fixed/discounted rate term. This is something our brokers would help you calculate, so make sure you discuss this with them during the refinancing process.
3. Increasing your borrowing due to plans to renovate your home
If you're planning to make improvements to your property, you can release some of the equity/capital in your home through refinancing. Borrowing more money will free up costs, which can then go towards the expenses associated with the renovation. However, bear in mind that the additional money will be added to your outstanding balance, and will be paid over the full term of the mortgage.
What happens to my old home loan?
Refinancing replaces your current loan as you are effectively taking out a new loan that pays off the remaining balance on your old mortgage. A home loan product transfer and a refinance are not the same thing, but they are similar. In both cases, your loan is being replaced by another one.
How long does refinancing take?
The typical refinancing process can take anywhere between four to eight weeks once you have submitted your application. However, this is not guaranteed and will vary depending on your individual circumstances, as well as any delays that may be encountered along the way. Your home loan broker will be able to keep you up-to-date with the progress of your application to give you a clearer idea as to when you should expect to complete. You may need the help of a conveyancer if you are changing lenders, so make sure to factor this into the timeframe.
What are the pros/cons of refinancing?
One of the key benefits to refinancing is the potential to secure a cheaper deal and pay less than you currently do for your home loan. You could also adjust your loan term according to your needs. This in turn can lead to feeling more in control of your finances, as it potentially frees up more capital for you to overpay your mortgage or spend elsewhere.
A refinance could also give you the flexibility to borrow more money (perhaps for a home renovation project or to support your loved ones in their own homebuying journey), or to consolidate any existing debts.
How much does it cost to refinance?
Refinancing itself doesn’t necessarily cost anything. Where the cost comes from is in associated fees, be it arrangement costs, legal fees, early exit fees, or broker charges. While it is important to consider any new rates you may be moving onto, it’s imperative that you factor in these other fees when you’re considering how much it will cost you to refinance.