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The term refinancing can cause a lot of confusion to many homeowners. Understandably, if you're new to the idea there may be questions you're a little embarrassed to ask on the topic. The first thing you need to know about refinancing is that it can potentially save you a lot of money and make life a lot easier.
There are a lot of things you need to consider before refinancing, in order to ensure you are trading-up and making the best of your home loan. Luckily, here at Lendi, we're ready to answer any questions you might have so that we can help you get the best out of your home loan and never pay more interest than you absolutely need to.
To refinance means to replace your current home loan with a new one with improved terms and/or a lower interest rate by using the new loan to repay the existing one. There are a lot of misconceptions about what this actually means. When you refinance you might move your home loan to a new lender, or update the terms of your loan with your current lender.
Refinancing is essentially an attempt to get a better deal on your home loan. People refinance for a variety of reasons:
Your credit score is a representation of your credit-worthiness based on your credit profile. It is usually a number between 0 and 1000 or 0 and 1200 which helps lenders determine whether or not they should loan you money.
A bad credit score might be the result of any defaults, outstanding debts, multiple credit inquiries, declined loan applications or bankruptcies in your history. Things like these can affect your ability to refinance in the future but do not rule out the possibility completely.
Refinancing with a bad credit score is possible but may entail higher interest rates so it can help to start by trying to improve your credit score. Start by assessing your credit file and pinpointing where you need to evaluate and change your spending habits.
By doing this you can cut back on any existing debts you might owe and work towards improving your credit score. Actively trying to change it will show lenders that you can be financially responsible.
Specialist lending helps borrowers who do not meet certain criteria for home loans to find alternative solutions. Specialist lenders can take a different approach in assessing your creditworthiness by manually examining your credit profile and creating broader loan terms and policies.
Alternatively, it may be a good idea to reconsider the necessity for a refinance, as taking the time to build on your credit score and improve it, can help you in the long run and make the refinancing process an easier one.
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It’s important to know that just as with any other financial change, there are upfront fees associated with refinancing. Changing lenders continuously affects your relationship with them as well. When you develop a relationship with a lender or bank then maintaining the relationship has its benefits and may lead to lower costs in the future.
These are some of the additional costs that may be associated:
The associated costs depend largely on which lender you decide to refinance with and the total cost of the loan itself. Doing the right research and comparing across the market can help to decrease any upfront costs. Contact a Lendi today to help make sure you get the best refinance deal.
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There is no definite time to refinance your home loan. You might refinance within the first year of your home loan approval or 10 years into repaying your home loan. Your reasons for refinancing will be different from the next person, so putting a timestamp on it isn’t necessarily ideal.
It is smart to regularly compare your current loan against the current market rates advertised to ensure your loan is still competitive and you're not paying more interest than you need to.
It can be a good idea to time your refinancing with the equity on your home. Most lenders require you to have at least 20% equity built up (80% LVR) before they consider refinancing your current home loan. If you do not yet have an LVR higher than 80% than you are likely to have to pay Lenders Mortgage Insurance (LMI).
Having a sizeable amount of equity in your home means that you are less of a financial risk to lenders which boosts your chances of being approved for a refinance.
Alternatively, you can wait for your fixed term to end in order to avoid being charged exit fees, assess your current loan terms and begin comparing it with other loans on the market.
Some people also like to keep their eyes on the rise and [fall of interest rates](https://www.lendi.com.au/guides/variable-rate-home-loan/) and make their financial decisions based on the movements in the OCR set by the Reserve Bank of Australia (RBA). However, it’s useful to consider the upfront costs of switching lenders for a competitive deal, as staying put might save you money in the long run.
How long you have to wait before refinancing usually depends on a combination of your refinancing goals, your personal circumstances, features of your current home loan and how much equity you have built up.
No, you don’t need to refinance with your current lender. In some cases, being aware of interest rates offered to new customers and the latest trends in market interest rates can help you. You can use this knowledge to convince your current lender to offer you a better rate.
Otherwise, if for any reason you might think refinancing will work in your favour, you might shop around with other lenders and compare their competitive deals to find yourself a new home loan.
Pros of sticking with your current lender
Pros of switching lenders
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Refinancing can take a matter of days for some people or weeks for others. The refinancing process largely depends on how long it takes for you to settle on a home loan that best suits you and the lender you choose to go with.
Generally speaking, what slows the process down is your existing lender’s process of discharging and exiting their deal. The transferring of debts between lenders will take time to complete, but varies according to each lender. Once you have finalised the paperwork, you can begin your new loan term with your new lender.
Some lenders offer a fast refinance or fast track refinance. This process quickens the time it takes for your existing lender to hand over the property titles to your new lender, to deposit the funds and to approve, sign and return your offer. You may qualify for a fast refinance, simply provide your lender with all the necessary documentation and criteria.
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You can view the steps involved in refinancing here.
Refinancing can be a big step in your home-owning journey. It’s important to understand how the process of refinancing works so that you get the best out of your home loan.
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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.
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