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What’s the process to refinance?

An experienced mortgage broker can help you through the refinance process by doing the following:
• Investigate and shop around for a mortgage.
• Apply with the chosen lender (this is all you’ll need to do). If you’re using a mortgage broker, they will do all the shopping around for you and recommend the most suitable mortgage and submits your application on your behalf.
• Refinancing is the same as applying for a new loan so you’ll need to provide standard supporting documents such as your identification, bank statements and payslips/tax returns.
• Once the application is submitted, the lender may require that your property be revalued.
• The lender will submit a discharge form to your state’s Land Titles Office to close the old mortgage account.
• Your new mortgage is used to pay off your old mortgage.
• You start paying your new home loan – usually within a month of settlement.

Reasons To Refinance

• Refinancing to get a better interest rate
• Refinancing to consolidate debt
• Refinancing to access equity
• Refinancing to renovate your property
• Refinancing out of a mortgage obtained with bad credit
• Refinancing because your mortgage is in arrears
• Refinancing to switch mortgage packages
• Refinancing to get potential tax benefits
• Refinancing to access additional features or add-ons

Will you be better off?

• Your mortgage may already be the best deal for you.
• You’ll need to take into account any upfront and ongoing costs associated with your existing mortgage and switching to the new one.
What is important to you?
• Are you after a lower interest rate?
• Are you after better service?
• Are you concerned about fees and other costs?
• Are you after new features or options such as flexible repayments, redraw facilities and account splitting?
Is it a good time to refinance?
If your mortgage is coming to the end of its fixed rate term, it’s a good time to shop around for a better interest rate or perhaps a more flexible product.
• Even if you’re on a variable rate, most people consider refinancing at around the 3 to 4 year mark.
• If you want to purchase an investment property, your current lender may be reluctant in releasing equity to you due to strict lending requirements. By refinancing with another lender you may be able to get your loan approved.

How much does it cost to refinance?

Refinancing comes at a cost so it’s essential to weigh up the savings of refinancing against the expenses involved. Generally speaking, these upfront costs are minimal compared to the thousands of dollars that you may potentially save on interest and other fees over the life of the loan period.
The following costs may be applied to your refinance, although many of these fees are usually added into your new mortgage:
• Borrowing costs: When you refinance, your new lender may charge a range of upfront fees.
• Loan application fee: Charged when you apply for a new home loan.
• Exit fees: These may apply when you pay out a loan early, usually in the first 3 to 5 years of your term. It could be a percentage of the remaining loan balance, or it may be a set charge.
• Valuation fee: Your lender may charge a fee to have your property valued by a professional property valuer.
• Settlement fee: Your lender may charge a fee to pay out your current mortgage.
• Discharge fee: Although exit fees were abolished in 2011, a discharge fee of around $150 to $300 is usually charged by a lender in order to release you from the mortgage.
• Break costs: You may incur break costs from the lender who financed your current mortgage. These fees apply when you refinance within the fixed period of your home loan. For example, say you’re on a 5-year fixed mortgage and you decide to refinance after 3 years. There is no hard and fast rule with these costs but they can be as much as $10,000. Standard application fees which vary between lenders including home loan set-up and settlement.
• Government fees to register and transfer the property: If you increase your loan as part of your refinance, you may be charged stamp duty depending on your state. Your state’s Land Titles Office will also charge a mortgage registration fee to register your mortgage on to the title record for the property.
• Ongoing fees depending on the mortgage you choose: These charges could include monthly account keeping fees, annual fees or fees for redrawing.
• Lenders Mortgage Insurance (LMI): One off fee only applicable if you have more than 80% of the purchase price owing on your home loan refinance.
Some of these fees can be negotiated by you or your mortgage broker. For example, fees may be waived, there may be a promotion happening, or you may be entitled to a rebate.
Mortgage brokers tend to have better relationships with lenders and can therefore negotiate harder on your behalf.

Am I eligible to refinance?

To be eligible to refinance you must meet certain criteria:
• Ideally, you should have less than 80% owing on your home loan.
• You can refinance on a variable rate: You can actually refinance every 6 months but keep in mind though that you’ll add an enquiry to your credit file every time you refinance. Despite this, it sometimes makes sense to refinance within the first few months depending on the amount of equity you have to use.
For example, you may have only settled your loan in the last 3 months but recently found an investment opportunity and want to access your equity to invest.
Your current lender may not allow you to do this but another lender may be able to consider your case. We may be able to help you do this depending on your equity position.
• You shouldn’t refinance on a fixed interest rate: Despite the break costs and early exit fees, it sometimes makes sense financially to refinance within the fixed period, especially if you recoup these costs within 2 years of refinancing. You should speak to a mortgage broker about your situation if you’re considering this (this can be tricky).
• You can refinance to a low doc mortgage: If you’re self-employed and can’t provide the necessary income evidence to qualify for a standard home loan, you can still borrow up to 85% of the value of your property.
You may not be able to provide the tax returns to prove your income, especially if you’re nearing the end of the financial year. However, you may be able to approach your accountant and ask for a letter declaring your projected income for the end of the financial year and get a low doc loan.
Cash out restrictions and other conditions apply so speak to a mortgage broker if you’re in this situation.
• You can refinance from a low doc to a full doc: Some people had a low doc mortgage but they’ve now got sufficient financial evidence that they can provide so they get a sharper interest rate with another lender.
• You can refinance out of a bad credit loan: You can refinance from a specialist lender to a major lender if you owe 80% or less of your property’s value and all of your defaults have been paid and are no longer showing on your credit file. See here for specific conditions and exceptions to standard policy.
What else to be aware of when refinancing
• You may pay LMI twice: That means you’ll be paying LMI when borrowing more than 80% of the purchase price of your property and paying this cost again if you refinance 3 or 4 years later and you still owe more than 80% on your property.
• Unsatisfactory service from the new lender: This could be any number of issues including below par customer service, dissatisfaction with the initial loan process or post-settlement process, having no Internet banking features or, conversely, no branch access.
• Adding enquiries to your credit file: Making too many applications with too many lenders can negatively impact your credit score. Any more than 4 enquiries in a 12 month period can limit the number of lenders you’re eligible to refinance with.