According to the Australian Banking Association, approximately 500,000 Australians refinanced in 2020. Many have likely opted to do so simply because mortgage refinancing enables you to repay your old loan and replace it with a new one.
This allows homeowners to lower their interest rate, reduce the duration of their mortgage, or convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM). In addition to these, we want to highlight that refinancing may provide more flexible loan options or a better loan structure.
To group these benefits with interest rates at historic lows, there has never been a better time to proceed with this financial plan. If you're thinking about refinancing your home mortgage, do these five steps to ensure you're fully prepared.
Step 1: Reiterate Your Reasons for Refinancing
Before you begin the application process, consider why you want to refinance. Some of these reasons include striking a better deal, including useful features such as redraw and offset accounts, shifting to shorter loan terms, changing from a fixed to a variable rate, raising funds to lower the cost of equity, and even combining debts.
For whatever reason, make sure that you can afford the increased repayments! Benefiting from a new loan also means you’re capable of living comfortably throughout your term. After all, you wouldn’t want to apply for a loan with bad credit.
Step 2: Determine the Cost
As with any financial decision, you must calculate the total cost before committing to a new term. For example, your present lender may charge you fees to cover administration fees from your previous lender, break your fixed-rate loans, and exit fees before a specific period.
On top of these fees, your new lender may also charge you for arranging the components of your new mortgage, such as valuation fees, settlement fees, and registration fees. To give you a ballpark price, refinancing your mortgage may cost you around $2,000.
Step 3: Consider What Makes Sense Financially
Before you refinance, make sure you can afford the higher mortgage payments while also fulfilling the lifestyle you want. At the same time, you must ensure your needs are being met and still have the capacity to save money.
To accomplish this, review your budget carefully and determine what makes sense. Note that even the most versatile mortgage brokers will favour you as a client if you have little debt, have excellent credit, and have significant savings.
Step 4: Prepare Your Documents
To refinance your home loan, you'll most likely need the official documents you used to get your first mortgage. These official documents include the following:
- Income verification
- Your last three pay stubs
- Personal and business tax returns from the previous two years, as well as an ATO Notice of assessment
- Rent receipts (if you own an investment property)
- Centrelink claims (if you are receiving the pension)
- Verification of financial situation
- Rate notices to property owners
- Account statements and three months' worth of savings transactions
- Three months' worth of credit card, loan, and transaction account statements
You'll probably need a builder's contract and plans for construction financing, as well as a sales contract for new buildings. Additionally, prepare a checklist for this step so you don’t miss out on anything!
Step 5: Apply for a New Mortgage
After accomplishing the first four steps, realign with your trusted financial advisor. Once everything is settled, it's time to apply for a new home loan with your preferred lender. While it would be best to contact your lender and visit a branch first, you may also begin the application process online.
Refinancing your mortgage could help you save money, free up funds, or shorten the duration of your mortgage, but while it may seem simple to do, it isn’t. This decision requires knowledge, research, and strict financial planning. So whatever your motive is for refinancing, make sure such an extensive modification is favourable to you as well as your family.
Are you looking for the best mortgage brokers in Sydney? Wealthy You is an Australian mortgage company specialising in home refinancing and offering various mortgage solutions. Our team also comprises professionals who have been in the industry for almost a decade. If you want to know more, contact us for an obligation-free meeting!