The refinancing process - how it works

Have you been thinking about refinancing your home loan? With record low interest rates and many emerging lenders, it might be a good idea. Many Australian homeowners are now seeking out more competitive interest rates and home loan packages that align with their changing lifestyle and financial needs.

In this article we’ll break down what refinancing is, how it works and why it’s something to consider doing as often as every couple of years.

What does it mean to refinance your home loan?

Most home loans are taken out to be repaid over a long period of time — usually between 20 and 30 years. It’s highly likely that your personal and financial circumstances will change within this time frame, so your home loan should change with you. By refinancing your home loan, you are simply replacing your existing loan with a new one.

That may sound like an intimidating prospect, but it’s very common and something that many homeowners are doing regularly. Typically people refinance to secure a lower interest rate or a more flexible loan that better accommodates their needs.

When you refinance, you can refinance with your existing lender or you can move to another lender. Sometimes it’s easier to stay with your existing lender but if their home loans and rates aren’t competitive enough, it may be time to move on.

• Related: Guide to refinancing your home loan

Why do people refinance?

Homeowners refinance for more reasons than to just get a lower interest rate, although that is a popular reason. Another popular reason is to get a new loan with improved flexibility.

While the stability of fixed rate home loans is appealing, a variable rate home loan has benefits of its own. For example, you can make unlimited extra repayments on your home loan, meaning you could pay it off faster. This is particularly useful for those random times you receive large sums of money (e.g. tax refund, bonus, inheritance).

Refinancing also allows you to add on loan features that can improve your repayment experience. An offset account is a loan feature that operates as a kind of savings account attached to your loan. The main advantage of this loan feature is that any money in your offset account offsets your interest payable. For example, if you have a remaining loan amount of $100,000 and $20,000 in your offset account, you only pay interest on $80,000. Meanwhile, you can access the offset funds anytime.

A redraw facility is a similar feature that allows you to access any extra home loan repayments you make, while reducing your interest payable.

Other reasons to refinance may include:

• Debt consolidation
• To access your equity (e.g. to renovate)
• Income changes that make you want to increase or decrease your minimum monthly repayment
• To alter your loan term
• Marriage, divorce, children
• Switching between an owner occupied loan and an investment property loan.

How long does it take to refinance?

The time it takes to refinance varies from person to person. At Lendi, we’ve had customers successfully refinance within a week. Normally these applicants will have had their necessary paperwork ready to go and are deemed as low risk borrowers, due to a good credit and loan repayment history.

Usually it takes a bit longer, especially when you take into account the time it takes to gather your required documents. Delays can happen, lenders often request further information and some lenders are known to process applications faster than others.

If a quick refinance is a priority for you, let Lendi know and we’ll try to help you make it happen.

• Related: What documents do I need to get a mortgage?

How to refinance your home loan

Before you start refinancing, it’s a good idea to understand why you are doing it and make sure you know how the process works. Lendi’s Home Loan Specialists are here to answer your questions and help you switch to a loan that is right for you.

1. Search and compare home loans

Begin by searching and comparing home loans against your current loan. Lendi’s online home loan platform allows you to compare loans from more than 35 different Australian lenders. We partner with several major banks, as well as a range of up-and-coming lenders — many of which operate entirely online.

Compare home loans here, or get touch with our experts today.

2. Find out your chances of being approved

To help you find the home loan options that are best for you, we’ll ask you a few questions about your situation, needs and preferences. Take your time assessing your options, and don’t be afraid to ask questions to clarify anything.

Our new Approval Confidence™ feature indicates the likelihood of you being approved for your loan options. This means that you can feel confident about moving forward with your application.

3. Apply online

Once you’ve decided on a loan, our platform allows you to apply to refinance your home loan entirely online. Your designated Home Loan Specialist will guide you through the process and negotiate with the lender on your behalf.

After your new home loan has been settled, you can enjoy having a loan that better suits you.

How much does it cost to refinance?

Refinancing fees and charges differ depending on your situation. If you refinance from a fixed rate loan during the fixed period, you will likely be subject to break costs. Exit fees may apply to loans contracted prior to 1 July 2011.

Other typical costs associated with could include:

• Property valuation fees
• Lenders Mortgage Insurance (LMI) if your equity is below 20%
• Application/establishment fees
• Government and legal fees

Refinancing can cost less than what you’d expect. Get in touch with a Home Loan Specialist to understand how much it might cost for you. Mortgage brokers like Lendi don’t charge for their services.

It’s important to consider whether the costs of refinancing are outweighed by the benefits of refinancing (e.g. a reduced interest rate, no annual fees).

Got a home loan question? Just ask!

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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.