A step by step guide to refinancing your home loan

Today, the process of refinancing is a lot easier and faster than it used to be, and for customers, there is also a lot more to be gained from switching home loans. In recent years, the Australian market has been flooded with dozens of banks and lenders competing for new customers and, as a result, they repeatedly undercut each other's interest rates.

Understandably many Aussie borrowers now refinance their home loan every 3-4 years to ensure they always have the best deal available.

In this article we’ll walk you through the process of refinancing, the pros and cons of switching your home loan, outline which documents you’ll need to share, and what exactly you’ll need to do throughout this journey.

How long does it take to refinance a home loan?

It wasn’t that long ago when switching your loan involved lots of painful paperwork and waiting around to hear from the bank.

Nowadays, homeowners can reap the rewards of refinancing quickly by completing the process in as little as 2-4 weeks if they go through the process online.

Step 1. What is your refinancing goal?

The first step to refinancing is understanding your motivation and why you want to refinance. That way you can identify exactly what outcome you desire and this will inform what loan products are best suited to you.

• Reduce your repayments - This is the most common reason for refinancing and the quickest way to lower your repayments is to refinance to a lower interest rate. Interest rates change all the time so it can pay to regularly shop around and check that you’ve got a competitive rate. The desire to pay less each month can be triggered by a variety of circumstances, some savvy borrowers are always on the lookout for a better deal while others choose to refinance because they require extra cash flow as a result of employment changes or lifestyle changes such as growing families.
• Pay off loan sooner - The Australian dream is to own your own home outright. Borrowers can reach this goal of paying off their loan faster usually by making extra repayments and ensuring they have a low interest rate.
• Access equity (get cash out) - Borrowers want to access equity from their home loan for a variety of reasons such as home renovations, buy a new car, or go on holidays. Lenders typically allow homeowners to borrow up to 80% of their property’s value. It’s important to note that accessing equity is likely to increase the loan term, meaning it will take longer to pay back your loan in full.
• Consolidating debt - Why pay more interest than you need to, right? Consolidating debt is a common reason for refinancing. If you’re already repaying loans such as credit cards, car loans or personal loans you’ll likely be paying a high interest rate. By rolling these debts into your home loan borrowers can reduce the total amount of interest they pay over the life of their loans.
• Access extra loan features or change current terms - Borrowers can refinance their home loan to access extra features such as an offset account or redraw facility with the flexibility to make extra repayments. Refinancing also provides an opportunity to update loan terms such as splitting your loan between fixed and variable, or switching from interest only to principal and interest (or vice versa). Read more about fixed rate home loans here.

Step 2. Crunch your numbers and review your current position

Before jumping on the refinancing bandwagon, you’ll need to review your current position and work out if refinancing is the right move for you.

Firstly, get an idea of how strong your position is by checking your credit score and Loan to Value Ratio (LVR). You’re looking for an LVR below 80% and a good credit score. If your credit score has improved since you first got your home loan you may have a good chance of qualifying for a better interest rate.

Learn how to calculate your Loan to Value Ratio in our complete guide to LVR.

Does it make financial sense for you to refinance?

The best way to figure this out is by using calculators. There are a number available online. Each borrower’s individual situation will differ and that’s why it’s important to crunch the numbers first.

• Repayment calculator - Seen a rate lower than your current one? Use a repayments calculator to figure out what your new monthly repayments would be if you refinanced. Try our repayment calculator here.
• Offset account calculator - Offset accounts are savings or transactional accounts that have the potential to help reduce the total amount of interest you’ll pay over the life of your loan. Try our home loan offset calculator here.
• Equity calculator - Equity calculators can help you understand how much cash out you could get by refinancing. Try our equity calculator here.
• Debt consolidation calculator - Enter the details of your existing debt to work out how much money you could save in interest over the life of your loans. Try our debt consolidation calculator here.

What are the potential extra costs of refinancing?

• Break costs - if you’re on a fixed interest rate and want to refinance, your lender will likely charge you breaking your fixed term. Break costs are calculated based on the length of time remaining on the fixed term and how much the lender stands to lose financially.
• Home loan application or establishment fees - lenders often charge borrowers an application or establishment fee to set up a home loan. However, some lenders will waive this cost, ask your Home Loan Specialist to negotiate this for you.
• Valuation fee - each time you refinance lenders will request a valuation of the property to assess whether it has increased or decreased in value.
• Lender legal fees - Some lenders will charge back the legal costs involved in settling a loan to borrowers.

Step 3. Shop around and compare home loans online

It’s important to shop around and compare a variety of home loan lenders. A rate reduction of even 0.5% may not seem like a lot at first, but it has the potential to save you thousands over the life of your loan.

Lenders stand to make a lot of money from the interest they charge borrowers and as a result they regularly undercut one another, which means a lot of competitive rates are available to borrowers.

One of the quickest ways to compare home loan rates is to use an online platform like Lendi. The benefit here is that you can compare dozens of lenders and view personalised home loan results in seconds. Plus, you can go ahead and apply online and choose from a huge selection of lenders, without ever needing to wait in line at a bank. If you need a hand, our Home Loan Specialists are always here to offer free expert advice.

Step 4. Outline your loan preferences and your needs

The next step in finding the right loan for your specific situation, is telling outling your current circumstances, your needs, and your preferences for your new loan. Again you can do this all online - at 3am, from your couch if you like!

You’ll need to answer questions about:

• Your current home loan
• Your income and employment history
• Your monthly expenses
• Existing assets e.g. cars, investment properties etc.
• Current liabilities e.g. credit cards, other loans
• Your loan preferences e.g. if you want to make extra repayments, an offset account or consolidate debt

Our smart technology then uses this information to compare thousands of options and calculate which loan is right for your unique circumstances.

Step 5. Upload your documents online

Next, you’ll need to verify your information by uploading documents related to your income, expenses, assets and liabilities. We’ll also ask you to verify your identity online. The good news is that our secure online verification system means you can upload and verify your documents online, without ever leaving your home.

The documents you’ll need to provide will include:

• Verify your identity e.g. passport, drivers licence, birth certificate
• Past 6 months home loan statements
• Recent bank statements
• Most recent PAYG or group certificate
• Details of your employment history e.g. recent payslips
• Loan statements for debts e.g. credit cards, personal loans, car loans (if applicable)

Once you’ve provided all the required information you’ll be able to make an informed decision about which lender and loan is right for your unique needs.

Step 6. Choosing the right loan for you

Once you have provided all relevant information, you'll see a tailored selection of loan options that suit your specific requirements. All you need to do is choose one!

Loan processing times will vary from lender to lender, so it’s a good idea to consider how quickly you want your loan to settle. If you are in a hurry, our experts can inform you of the average processing times for each suitable lender. Our Home Loan Specialists are on hand to answer all your questions and guide you through the process.

When you’ve decided on a loan and provided all the supporting documents, we’ll submit your loan application for approval. You can check your loan's status 24/7 using your online dashboard.

Start you home loan journey now by chatting with a Home Loan Specialist.

Step 7. Conditional approval

Once your loan is submitted your chosen lender will typically take a few days to begin assessing your refinance application. We’ll keep you updated on your application and you can stay updated using your loan dashboard online 24/7.

Keep in mind: It is not unusual for your lender to request some extra documentation from you. You can upload these securely online on your dashboard just like your initial documents.

You’ll also need to sign a discharge form so that we can notify your current lender.

Step 8. Property valuation

Lenders will typically request a property valuation when a homeowner is refinancing so they can assess the total value of the property. Your Home Loan Specialist can work with your lender to organise this. Sometimes it will be completed prior to conditional approval to ensure a speedy approval process.

Step 9. Formal and final approval

Formal approval means that your chosen lender has agreed to refinance your current home loan. They will draw up a contract for you to sign.

Your mortgage documents will typically include:

• Mortgage contract: make sure to review this before signing
• Direct debit form: provide the details of the bank account your repayments will be debited from

What is a certificate of currency?

This is a document issued by your insurance provider confirming your home is insured. If required by your lender, you’ll need to ask your building insurer to update the name on your policy to your new lender. Once you’ve got the updated documents you can send this back with your mortgage documents.

Step 10. Settlement day

Settlement day is the day when the funds for your new home loan are used to pay off your old home loan and close the account.

If you’re consolidating debts with your home loan, these debts can also be paid off on settlement day, but you will need to close your old credit card account, car loan, or personal loan account yourself.

Your new home loan begins on settlement day and your first home loan payment is typically due one month after settlement day.

How can I get started?

You can apply for your loan in a matter of minutes here. Once your loan is submitted, your chosen lender will typically take a few days to assess your application before coming to decision.

Your Home Loan Specialist will be on hand every step of the way to provide expert advice, plus you can check your loan's status 24/7 on your dashboard.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.