Refinancing Smarts

Five steps to refinancing your home loan.

There’s a lot to think about when refinancing your home loan, so we’re here to break it down for you. These are the five main steps you’ll need to go through to decide if refinancing is right for you, find the best deal for your needs and navigate all the paperwork in the process.

Good luck!

Step 1: Assess your current situation

People come to us for assistance with refinancing for many different reasons and everyone’s situation is different. Before you decide on refinancing, you’ll want to sit down and assess your current situation – both in your general finances and the status of your current home loan.

Start by carefully considering what your current home loan is really costing you. You might be looking into refinancing if you’re on the hunt for a lower interest rate, but paying less interest won’t always result in a cheaper loan overall if you’ll be subject to higher fees or will lose some of your benefits.

Check for the following components of your current loan:

• How much interest are you paying?

• Is the interest rate fixed or variable?

• Can you make free redraws?

• Can you make free additional repayments?

• Does it allow you to use a 100% offset account?

• Are there early exit or discharge fees?

Next, you’ll need to look at your future plans for the home. If it’s not to get a lower interest rate, another popular reason to refinance a home loan is to fund renovations. This can allow you to access the equity from your home loan to fund your renovations, but there are other types of loans available for this purpose too. If you’re planning to refinance in preparation for a new kitchen or other mostly cosmetic renovations, a line of credit could be a good option for you.

It’s important to weigh these factors up against any new loan options to make sure the end result will be more financially worthwhile for you.

Step 2: Decide if refinancing is right for you

Once you know the answers to the information above, you can use this to inform a decision on whether or not refinancing will be worth your while.

Refinancing may be right for you if:Refinancing may not be right for you if:

• There’s been a significant shift in your personal financial situation

• You want to use equity from your current mortgage to fund another big purchase

• Your current interest rate is not competitive or you’d like to lock in a lower fixed interest rate

• You are undertaking major renovations or structural changes to your home.

• Your loan balance is already low

• Your income stream may not be stable over the length of the new loan

• Your credit rating has decreased since taking out your original mortgage

• There are high discharge fees in your original mortgage contract

• You’re only undertaking minor renovations

• You want to consolidate short terms debts like credit cards or personal loans

This is only a guide, so if you’re still unsure, come in for a chat and we’ll help you determine the right choice for your financial needs.

Step 3: Calculate your Loan to Value Ratio

A Loan to Value Ratio (LVR) is the ratio of a loan compared to the value of an asset. In this case, the value of your home compared with the size of the new loan amount you require.

To calculate this, you’ll need to account for the size of your mortgage and any fees that will apply plus renovations or any other debts you may want to consolidate into the refinancing.

You will also need to have an idea of the value of your property. Remember that your new loan provider will always conduct a valuation on your home before approving the loan and this will usually be conservative compared to the real market value.

Don’t worry, we can do the math for you, but here is a simple example of how it works:

Mortgage: $300,000

Renovations: $7,000

Personal loan: $3,000

Fees: $5,000

Total Loan Amount: $315,000

Your Home Value: $500,000

LVR = 63%

Step 4: Shop around for the best deal

Now it’s time to start looking for that new loan. In order to make sure you really are getting a good deal, it pays (literally) to shop around for the best new home loan option with the help of My Finance Agent.

Doing all the research on your own can get overwhelming, and it can be difficult to spot what is truly a good deal, especially if you haven’t refinanced before. My Finance Agent will get to know your personal situation and needs, then sort through the hundreds of financial products at their disposal to locate the best one for you.

Remember that every application for credit you make is marked against your credit report, even if you do not go through with them. So while shopping around is an important step, you shouldn’t be making multiple applications as you go. Make sure you only move onto the next stage once you’ve made your final decision.

Step 5: Paperwork time

Once you’ve decided on the best new home loan to go with, it’s time to get your application ready. Don’t worry, if you’re using My Finance Agent this process will be very straightforward and we will spend our time on the phone and at the photocopier getting everything sorted so you don’t have to.

Here’s what you’ll generally need to provide for us to get started:

• Proof of income (usually your last 2 payslips at a minimum)

• You latest notice of assessment from the Australian Tax Office

• Your mortgage statements from the last 6 months

• Valid proof of ID (driver’s license, passport or birth certificate)

• Superannuation details

At this point, you’ll also want to get things in order to cancel your old loan. Be sure to check with your old lender to find out what’s required and what documents you’ll need to sign.

Once you’ve been approved for your new loan, you’ll receive a new mortgage contract. You’ll want to read this carefully and make sure you fully understand all the terms before signing and submitting it.

Once this has gone through, you can await your settlement day. This is where your new mortgage will be used to pay off your original mortgage. Any other debts you rolled into your refinancing will also be cleared.

Congratulations – now you’re done! Your home is now in the name of your new loan provider and all repayments will be made to them in the future, in line with your agreed repayment frequency.