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How to refinance your home loan in 5 easy steps – Ultimate Guide

How to refinance your home loan in 5 easy steps

Are you looking to refinance your home loan? If so, then this post is for you! In this article, you will learn how to refinance a home loan in just five easy steps. Refinancing a home loan can be a great way to save money on your mortgage payments and reduce the amount of interest you pay over the life of your loan. By following this guide, you will be well on your way to saving money and improving your financial situation.

Step 1: Understand the basic principles of refinancing a home loan

If you’re looking to refinance your home loan, it’s important to understand the basic principles and how the process works. Refinancing your home loan involves switching from your current home loan to a new loan product with different terms or rates. To successfully refinance your home loan. It’s essential to get the help of a home loan specialist who can guide you through the entire process.

When you refinance your home loan, you may be able to reduce your interest rate. Lower your home loan repayments, extend the loan term, consolidate debts, or access additional funds. You can find out more by visiting your lender’s website or checking out their home loans product section.

When you understand the basics of refinancing a home loan. You can then move on to the next step – evaluating your current position.

What is the refinancing process?

While there are technically three types of refinancing. The exact number of refinancing options you have available depends on who you ask and your situation.

There are three main types

  • Refinance Loan: We offer a loan for when you would like to change the loan term, loan type, or interest rate.
  • Take out a cash-out refinance loan for money between your existing mortgage and the one you want, withdraw the money from your cash and leave it with your mortgage.
  • Apply for a cash-in refinancing loan to take advantage of recent stability to take out a loan with more favorable interest rates.

If you’re wondering what kind of mortgage refinancing makes sense for you, here’s what you need to do.

Refinancing my home loan is something I’m considering.

In most cases, for you to be eligible for refinancing you need to consider the timing, the offer, and the equity on the property.

Your primary question is How long have you been under contract with your current provider? When less than 12 months have passed since entering the contract, you are likely to be paying exit fees and other expenses related to your switch that might outweigh any benefit in the reduction in interest rates and/or lengthening of your loan term.

What is the minimum amount of equity I need to refinance?

To qualify for a refinance loan, you need at least 20% equity in your home. Despite not being a minimum requirement, this is the industry standard and if your equity falls below it, you’ll need LMI (lenders mortgage insurance). The cost of LMI is high, even if you’ve paid it on your current mortgage. You won’t be able to carry it over.

Refinance for the right reasons

It’s also important to understand exactly why you’re refinancing. Identify the comparative advantages of the new loan and get clear on why you’re switching home loans.

Refinancing is done for several reasons:

  • Better interest rates can be accessed by leveraging
  • Loans that are shorter in duration
  • A loan can be converted from a fixed rate to a variable rate or vice versa
  • How to access your home’s equity

While all of these reasons are valid, you should consider the opportunity costs of refinancing to make the most of your options. You can use our refinance calculator to see how much you can save.

Step 2: Check the pros and cons of your current loan before pursuing a new mortgage.

If you want to figure out if refinancing is a good option for you. The first step is to get a firm grasp on the process of refinancing and the specifics of the lender, and what their refinancing options entail.

Now consider your current financial situation

While refinancing can be a fantastic financial trump card when it comes to lowering your monthly repayments or shortening your loan term. Constantly switching loans can lead to more and more unnecessary debt.

This is of special concern to people opting to tap into their equity via a cash-out refinance to consolidate other debts such as credit accounts or car loans, so budget and control the cash.

Even if it is for refinancing to lower your loan term. You may not be able to recoup your investment if you do not plan to stay there for a long period.

That’s my point in short. But if you have any specific financial commitments and long-term plans to consider, be sure to include that in your analysis.

Lending consists of 3 Ps:

When approving a loan, lenders consider the 3 Ps, which can be used to self-assess whether or not you are capable of refinancing.

  • The purpose of the loan identifies how you will use it. Are you planning to use the cash from a cash-out refinance to improve your home, consolidate your loans, or purchase other assets? Additionally, the lender will consider the current economic climate, real estate market, and any industry that might be contextually relevant.
  • Providers look at the overall stability of your credit when you apply for a loan. If you have one too many significant outstanding loans against your name. Your chances of refinancing will go down even if you hold a high enough equity percentage in your property. They can also tell you about an applicant’s character and some lenders will request references. Note Determines your capacity to pay on time. This capacity is measured by your income, payment history, and liquid assets.

To put it simply, the lower your LVR, the less you need to borrow to purchase the same home.

Simply stated, LVR is the percentage of your home’s loan you owe as compared to the property’s value. For example, if you owe $600,000 and your home is worth $950,000, your LVR would be 63.2%.

The higher the loan, the less this will apply. However, for first-time buyers taking out loans worth a significant amount it’s important to mention that most loan providers have a max LVR of 90%. As we mentioned earlier, an LVR of over 80% results in the necessity to pay LMI, so we advise aiming for at least 20% equity.

Though 90% LVR is technically the maximum you can borrow, many lenders will also consider how much income and expenses you have to work with in addition to your loan terms when calculating borrowing power. If it seems complicated, don’t worry–our borrowing power calculator will be able to show you how much you can borrow and what you need to do to qualify for it.

Take a look at the cost of your current home loan

Look at your current payment to see your interest rate. You can find your current interest rate on your home loan statement, in your online banking (if applicable), or on your lender’s website under the home loan product section. It is also possible to contact your lender directly to find out.

When you calculate how to get a better deal, you should also factor in any ongoing or annual fees you’re paying.

From time to time, it is said that taking advantage of the latest payment options on your current loan can be more beneficial to your situation. Utilize our free-to-use home loan offset calculator and extra repayments calculator, to see if you may save money or repay your loan sooner.

Talk to your lender about different terms

Before starting the process of refinancing, be sure to ask your current lender about the possibility of lower rates. Most will do everything in their power to retain you as a customer. That being said, they dedicate teams to maintaining customers because according to an old saying. It is five times more expensive to acquire a new customer than to keep an existing one.

While you might not have thoroughly researched all your home loan options at this point. You can use some comparison rates to enhance your bargaining power during negotiations.

Analyze exit costs or break fees

Leaving your current lender always comes with costs. There is usually a discharge fee associated with leaving. This fee can range from a few hundred dollars to several thousand dollars, depending on your contract duration.

There are break costs when you leave a fixed-rate home loan early. These can run into the tens of thousands but could be as low as a few hundred dollars – and may include outstanding LMI premiums. Asking your lender is the best way to find out.

Step 3: Compare home loan options

Now is the time to take real action and start comparing rates from different lenders to see what you might save. Without question, there will be different home loan rates available for significantly cheaper than what you are paying now. Once you take a closer look, you may see all is not as it seems. Be sure to compare not only the interest rates but other aspects to be sure it is a good deal.

Remember that expensive fees could subtract from the benefit you reap from going with a new lender. If you want an idea about whether a new lender has unreasonable fees. Take a look at the rate that he or she uses for comparison. This will include fees, along with the rate for comparison.

Home loans come with different features that can save you money, so be sure to compare these before signing the papers. Some features you might look for when choosing a home loan are an offset account, redraw facilities, and split facilities.

The difference between a fixed-rate mortgage and a variable-rate mortgage is a fixed mortgage assures you of what your payments will be like throughout the loan. Depending on which variable loan you take out, you’ll have different options. You could also make extra payments if you have the financial flexibility, but if you don’t, you may prefer a split loan to take advantage of both options.

The product provides you with flexibility and an assortment of home financing options. Whether it’s time to put your foot on the property ladder, extend the life of your existing mortgage, or restructure how you service your debt. Some of the options you might be interested in, like weekly or fortnightly payments or the portability of your loan, will allow you more flexibility.

Consider the costs of moving to a new lender

The move to a new lender may incur hidden costs if you have considered rates, fees, features, and options from various mortgage providers.

Also, consider any promotions that lenders are running. Some lenders may offer special deals where they waive refinance fees or will cover some of the costs associated with leaving their current lender. You should be able to figure out how much you will save by switching lenders once you’ve determined how much you will save by leaving your current lender.

Your options: how to compare them

We recommend that you use a combination of the three methods when comparing home loans. They are all equally good. For more information, please contact us

Direct inquiries can be a good way to negotiate with your current lender. But you can also leverage your improved loan terms directly with other lenders. We are confident that we have the most competitive and attractive rates on the market, so new customers can enquire directly with Homestar Finance.

Compare websites

To get a better idea of what’s out there in the current market, you can check out multiple comparison websites. Just make sure to consult various sources, as some comparison sites may be biased.

Make use of a broker

It is the most expensive method of all, but a mortgage broker can help you streamline the process and also provide you with personal advice. You can also gain a better understanding of your options by discussing them with a professional financial advisor.

Step 4: Consider applying for your new home loan

Now that you’ve found the loan with the best deals and the largest savings, it’s time to apply.

It requires the following

Different lenders have different application processes and criteria for acceptance, but for the most part. You’ll need a few different details to get the process started.

  • Privately identifiable information, like your name, date of birth, and contact information. It will also be necessary for you to present a valid ID. Options for such identification are a driver’s license, Medicare card, or passport.
  • Financial information: You must list your employment, income, assets, and liabilities. So make sure to bring payslips and bank statements for your loan officer to take a look at.
  • Requested Information. You must fill out a section with your current home loan details, so your lender can see your repayment history and outstanding loan amount.
  • Giving details about the property is essential for you to share with your new lender. They’ll need to calculate the worth of your house to decide how much money to lend to you.

Ask for and sign for approval and settlement

Typically, it takes up to 10 business days for the bank to get back to you on whether or not you’ve been approved, but the information you provide will be an important factor.

Step 5: Get rid of your old mortgage

You will be discharged from your old mortgage by your new lender. You won’t have to worry about things like title transfer because they’ll exchange all the necessary documents.

Once that is accomplished, your new mortgage reaches a stage called settlement. This is when the funds for paying off your old mortgage are released. We should be able to complete the application process in a couple of weeks if everything goes well.

That’s all there is to it. Congratulations! Your home loan has been refinanced successfully. Be sure to monitor your home loan roughly every 18 months to ensure you are still getting a good deal. Although refinancing can take a bit of time and research. It can save you tens of thousands of dollars in the long run.

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