Tips for refinancing your home loan
Thinking of refinancing?
Refinancing is the process of replacing an existing mortgage with a new loan, either with the same lender or a new lender. In effect, you’re really paying off an existing loan and getting a new one. Typically, people refinance their mortgage to reduce their monthly payments, lower their interest rate, or change their loan from a variable rate to a fixed-rate.
There is a myriad of other reasons why you might want to consider refinancing your home, including:
To access the equity in your home (to buy a pool, complete a home renovation etc)
- A change in personal situation, such as a divorce
- The purchase of an investment property
- Reacting to a change in interest rates
- A significant change in your personal financial position
- You might need to consolidate your debt
Refinancing tips
No matter what your reason for refinancing, these tips from SBB Lending will hold you in good stead as you navigate the refinancing waters.
1. Explore your why
Why do you need or want to refinance? You will need to be able to articulate your reason for refinancing to your mortgage broker and will also need to provide the facts and figures (purchase or renovation costs etc).
2. Speak to your mortgage broker
No matter what your reason for considering refinancing, before you do anything speak to your mortgage broker. They will be your wise counsel, sounding board and tour guide throughout the process.
3. Know your equity
Remember when you apply to refinance your home loan, your lender will assess your ability to repay. You will need to be able to tell them about your current financial position and the equity you have in your current home or properties.
When refinancing, equity functions in much the same way a deposit does. You may need to have an evaluation completed on your home to prove your equity.
Most lenders are looking for the three P’s of lending:
- Purpose – make sure you understand your why
- Person – what’s your financial and personal position?
- Payback – will you be able to repay the loan?
4. Remember the extra costs
As you’re pretty much paying off one loan (early) before taking on a new one, you will need to be mindful of refinancing costs, which can sit between 3 per cent and 6 per cent of the loan’s principal.
5. Be prepared
Generally, you will need to be able to present the following documents to your mortgage broker or lender:
Recent payslips
- Your latest Tax Assessment Notice
- A letter from your employer that confirms your salary
- Formal identification (eg. passport or driver’s license)
- Financial and credit documents (eg. credit card statements, evidence of your current mortgage, bank account statements etc.)
6. Compare a wide range of home loans
The most important thing you can do is to thoroughly compare a variety of different home loans (looking deeper than just the interest rate) to find the best one for you and your financial position, instead of just taking the first one you see. SBB Lending has more than 30 home loan providers on its books to assess your needs against.
7. Don’t react too quickly to interest rate changes
While low mortgage rates may encourage many homeowners to restructure their finances, the decision to refinance your home loan should be made based on your personal financial circumstances, not on a small increase or decrease in the interest rate. Chat to your mortgage broker who can help you reassess your bigger financial picture.
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan, helps you achieve a lifestyle goal, or helps you build equity more quickly. When used carefully, it can also be a valuable tool for bringing debt under control.
Looking at refinancing in the new year? SBB Lending has access to over 32 lenders which means we can find the right solution for you. Our Ipswich and Brisbane mortgage broking and finance specialist Matt Gnech is available to discuss your requirements today. Make an appointment to discuss your options.
