Refinancing A Home Loan — How It Works & What To Expect

With many homeowners hoping to see interest rates trickle downward towards the end of 2024, it’s prompted many to consider the value of home loan refinancing. Refinancing gives homeowners the opportunity to reshape their finances and take advantage of a low interest market. 

However, if this is your first time considering refinancing, you might be wondering where to start. In this blog post, we’ll explain what refinancing is, the potential benefits, the home loan refinancing process as well as the costs involved. 

What is home loan refinancing? Four reasons to consider refinancing

Refinancing a home loan means replacing your current home loan with a new, more competitive offer. Many homeowners fall into the habit of “setting and forgetting” their finances, but this approach could cause you to miss out on opportunities to save thousands. By refinancing your home loan, you can look forward to the following benefits:

• A reduced interest rate — One of the biggest reasons homeowners consider home loan refinancing is the chance to secure a lower interest rate. Whether you prefer the security of a fixed rate or the flexibility of a variable rate, switching to a different, lower rate can drastically reduce your monthly repayments. This gives you more wiggle room in your budget and frees up your cash flow, allowing you to put the extra cash towards other financial goals. 
• Access to home equity — Home loan refinancing may allow you to access equity in your home, which you can use to fund renovations, new investments or other planned financial goals. 
• Reduced loan term — Many homeowners aim to pay off their home loan as early as possible. Refinancing allows you to not only lower your interest rate but the length of your loan. This allows you to clear your loan balance faster so you can embrace a new mortgage-free life. 
• Debt consolidation — If you have multiple personal debts aside from your mortgage, such as a credit card or personal loan, a home loan refinance can help you consolidate these debts into one manageable payment. Through debt consolidation, you’ll only have to worry about one monthly interest rate and one monthly payment, easing the financial burden of paying off your debts.
• Access better loan features —  While your interest rate matters, the way your loan works for you is more important. As your financial position and goals change, your current home loan may be restricting you with its structure and features. Refinancing is a great opportunity to review the big picture of your situation and ensure your loan is aligned with your current financial goals. 

How does refinancing a home loan work?

If you’ve decided to refinance your home loan, it’s time to start researching the process. There are generally two options: doing it yourself or partnering with a mortgage broker. Let’s explore the process of home loan refinancing with the assistance of a mortgage broker: 

1. Initial consultation 

While homeowners can opt to refinance their home loan on their own, working with an experienced mortgage broker can simplify the process. Mortgage brokers are experts in this area and regularly work with clients to source new home loans aligned with their financial profile. 

The first step is to schedule a consultation with your mortgage broker to discuss your refinancing goals. Whether you’re looking to reduce your interest rate, change your loan term, access equity or consolidate debt, the broker will assess your financial situation and explain how refinancing could benefit you.

2. Market research and loan comparison 

Mortgage brokers often have long-standing relationships with lenders and access to a wide range of lenders and home loan products, including negotiating power to obtain the most competitive interest rates for you.

Based on your needs, the broker does the legwork of comparing and reviewing loan products on your behalf, saving you time, effort and unnecessary credit enquiries that may negatively impact your credit file. This allows you to find the most competitive rates and loan terms tailored to your circumstances without lifting a finger. 

3. Loan application 

Once the ideal loan product is selected, the mortgage broker assists you in completing the necessary paperwork for the loan application. They gather financial documentation such as proof of income, employment details and property information, ensuring all requirements are met. The broker then submits the application to the lender on your behalf.

4. Negotiation 

A major advantage of using a mortgage broker for refinancing is their ability to negotiate with lenders. During this stage, they’ll use their relationships with lenders to secure the best terms for your situation, such as lower interest rates or reduced fees. Depending on how long the broker has been working with the lender, they may also be able to expedite the approval process and address any potential issues that arise with the lender.

5. Loan approval and settlement

Once your loan application is approved, the broker will streamline the settlement process. Depending on the complexity of your loan application, this may involve coordinating with your current lender to pay off the existing mortgage and setting up your new loan with the refinanced terms. You will then be discharged from your previous home loan and can begin making repayments on your new one.

The costs of refinancing a home loan — what you need to know

While refinancing your home loan can help you obtain a lower rate, there is a cost to this process which is generally around $1,000 (on average). Here’s a breakdown of the common expenses you might encounter when refinancing:

• Application or establishment fees — Many lenders charge an upfront fee when you apply for a new loan. This fee typically covers the costs of processing your application and setting up the new mortgage.
• Valuation fee — Before approving your refinance, the lender will require a property valuation to assess its current market value. Your broker will be able to let you know if this will incur a fee or not as some lenders will cover this for you.
• Discharge or exit fees — All lenders will charge a set discharge fee — generally around $300 (on average). If your existing loan is currently on a fixed rate, you may be charged an additional break cost fee from the lender at settlement. 
• Lenders Mortgage Insurance (LMI) — If you have less than 20% equity in your home, you may need to pay Lenders Mortgage Insurance (LMI) when refinancing. Even if you’ve already paid LMI with your current loan, refinancing to a new lender may require you to pay this insurance again.
• Title office fees — Your state’s office of state revenue will have set fees you will be charged to update the lender registered as the mortgagee on your title. 
• Accrued Interest — While this is a cost you will incur either way it is an additional amount that will need to be added to your new loan balance when you refinance. As interest is calculated daily and charged monthly it is highly likely that your existing lender will need to increase your outstanding balance on settlement day to account for this. Eg. If you settle on day 28 of the month, there will be 28 days’ worth of interest that will not yet be included in your “loan balance” visible to you through Internet banking. 

Access some of the best deals on the market with Shore Financial

If you’re tossing up whether a home loan refinance is the right move for you, speak to the professional team at Shore Financial. For more than ten years, we’ve been helping Australians achieve their property goals through our strategic home loan advice. With more than 70 lenders to choose from, we can match you with the best deal for your circumstances. 

For more information about our refinancing service, please contact us today at 1300 416 700. 

FAQs

What are the costs associated with refinancing a home loan?

The costs of refinancing a home loan can include application fees, valuation fees, exit fees, lender’s mortgage insurance (if applicable), settlement fees and more, depending on your personal situation.

How long does the refinancing process take?

On average, many refinance applications can be settled within four to eight weeks. However, note that the time it takes to refinance a home loan will depend on factors such as the complexity of the loan, the application and discharge process of each lender and the time it takes to complete services, such as property valuation and inspections.

How much can I save by refinancing?

Savings vary based on your current loan terms and new interest rates. A lower rate could save you thousands over the life of the loan.

Can I refinance with the same lender?

Yes, many homeowners refinance with their current lender, though it’s a good idea to shop around for better deals.

Do I need to re-qualify for refinancing?

Yes, you’ll generally need to go through a new approval process, which may include a credit check, income verification, and a property appraisal.

Can I access equity when refinancing?

Yes, many homeowners refinance to access the equity in their home for renovations, investments, or debt consolidation.

Is refinancing a good idea if I’m planning to sell my home soon?

It may not be worth the costs if you plan to sell in the near future, as you might not have enough time to benefit from the lower interest rates.