Are you thinking about refinancing your home loan, but you have a few unanswered questions? You’re not alone.
With so much information available, it can be overwhelming try to sort through what information applies to you. There are a number of common refinancing questions lenders regularly see and we’ve listed the most common below.
Many borrowers refinance to obtain a better interest rate, but some also refinance to:
- Fund other expenses, such as:
- Renovations on their own home
- Renovations on an investment property
- A holiday
- A new car
- Consolidate their debt. This is done by increasing your home loan to payout all your debts and get some much needed breathing space. You can then focus on one repayment instead of many repayment deadlines.
Did You Know?
Borrowing more when refinancing can only be done if you have enough equity. You can increase your loan to 80% of the value of the property without incurring mortgage insurance, or 90% with mortgage insurance. Refinancing above 80% is not very common so if you owe this amount already then there is no real room to increase to borrow more.
A property valuation is a part of the loan application process where the lender will have a valuer complete a valuation report on the property. They give the property a value that the lender uses in their calculations as well as providing information about the property and the market conditions in the area. You won’t know all of this until the report is completed.
You are able to get an idea about what your property is worth by doing your own research:
- Look at actual sales of similar properties in your suburb in the past 6 months
- Look at websites such as realestate.com.au or domain.com.au for recent sales history.
- Speak to local real estate agents about activity within the area.
- Compare your property with other similar properties. They should have similar construction, land size, number of bedrooms and improvements.
There are also a number of things you can do to help boost your property’s value. Take a look at our blog, Tips to improve your valuation to get some ideas.
LMI is payable when you borrow more than 80% of the value of the property. LMI is not transferable between lenders, so when you refinance to another lender, if your loan is not below 80%, it will be payable again. Often when you add up the benefit of refinancing, the cost of the mortgage insurance can outweigh the benefits of the lower interest rate.
If you are not sure, discuss this with your prospective lender. They may have access to data and help crunch the numbers to determine if it is worth proceeding.
Take a look at the other refinancing fees you may be charged.
Choosing a loan term will depend on what you want to achieve in both the short and long term. If you prefer to have lower repayments now, you may choose to extend your loan term. But remember, even though you have smaller repayments now, if you are only paying the minimum amount each month, you will pay more interest over the long term.
Generally it will take 4 to 6 weeks to complete following steps:
- Find a lender and home loan that suits, complete a loan application and submit it to the lender.
- Initial assessment completed to be sure that you can afford the new loan and conditional approval issued
- Property valuation is ordered. The valuation is critical to determine how much how much you can borrow and whether the property is an acceptable security for the loan.
- Unconditional loan approval issued once all checks are complete.
- Loan contracts issued for the new loan. These need to be signed and returned. They are then checked to ensure that everything is ready to proceed.
- New lender contacts the old lender to arrange changeover of the loan, which is called settlement. Both agree to a day for this to occur. On this day the old loan will be paid out and the title to the property is handed over.
- New loan started. Once settlement has occurred you will be notified by the new lender.
Interested in refinancing?
Take a look at our Guide to switching home loans.
Finding a lender that understands what you are looking for and will take the time to explain the benefits can be a big help. State Custodians offers very competitive home loans, with a broad range of features and we have a team of Lending Specialists ready to answer any questions you have. Check out our home loans here or call on 13 72 62 to chat to a lending specialists about refinancing.
Find out more about other home loan options and get tips on what to look for: