It’s one of those life tasks that you may cross at some point in time, but refinancing your home loan doesn’t have to be as scary or hard as you’re thinking it is. In fact, you could find yourself wondering why you dreaded it in the first place. Before you start looking into home refinance rates, let’s put those worries at ease – we’ll cover what it is, how refinancing works, reasons for refinancing, costs to be aware of and some final tips to keep in mind.
What is refinancing?
In short, refinancing your home loan essentially means to make changes to your mortgage, either by changing to a different financial institution or by changing to a different home loan product (for example, changing your home loan from a fixed interest rate to a variable interest rate)1. Now you’re set on what it means to refinance, it’s a good idea to consider why you’re looking into this.
Reasons for refinancing
There are many different reasons for refinancing your home loan. In recent times, one of the more common reasons is due to many home loans coming off their current fixed term rate, meaning homeowners may choose to refinance to a new fixed rate or switch to a variable rate1. In this case, refinancing your home loan may even mean switching to a different financial institution. Alternatively, if you’re on a variable home loan and are finding it difficult to manage your mortgage repayments as they fluctuate constantly, you may be looking to refinance to a fixed rate home loan1.
Perhaps you’ve done some research and found there are more competitive interest rates out there than what your current financial institution is offering. This could be another motive to refinance your home loan1.
If you find yourself wanting to make some renovations to your current home or make other big purchases, you may be looking at refinancing your mortgage so you can access the equity you have accumulated in your home1. Make sure you read our tips section later on if you’re considering refinancing for this reason.
There can be other reasons for refinancing, as each individual situation is different, though these are the most common.
Steps to refinance your home loan
So, now you’re ready to understand the refinancing process and what you’ll be expected to do to finalise everything.
1. Decide on a home loan product
Before you get too carried away, make sure you decide if you’d like to refinance to a fixed home loan or a variable home loan1. This is probably the most important step as it’ll require you to consider what type of features you’re looking for in a home loan and then finding a product that matches your needs. It’s a good idea to research the home refinance rates circulating in the current market so you have a clear idea of what you’re wanting.
2. Choose a financial institution
Once you have a clear idea of which type of home loan you’re looking for, it’s time to decide which financial institution can meet your needs. Chat to your lender to see what they can offer you and whether that will satisfy the requirements you have for refinancing your mortgage1. This may also be the time that you decide to move to another financial institution, depending on what’s on offer.
3. Complete your refinance application
Remember all the steps you went through when you first applied for your home loan? You essentially have to do that all again (though you may not need to provide as much paperwork this time around) when you refinance your home loan – don’t worry, your lender or broker will help you1.
4. Apply for financial approval
Again, this process will be very similar to when you originally took out your home loan, though it could be a quicker process if you’re not changing financial institutions1.
Costs to be aware of when refinancing
When it comes to refinancing your mortgage, there are some fees you’ll need to be aware of.
You may recall paying application, settlement and possibly also valuation fees when you took out your current home loan. Be prepared, as you will be required to pay these fees again when you refinance your home loan2. However, it’s best to enquire directly with your bank for the most accurate information.
If you plan to switch to a different bank, it’s a good idea to check if there are exit fees to leave your current financial institution2. While you could be looking to move to a different bank because they offer a more competitive interest rate, it could all be for nothing if you have massive exit fees to pay.
It’s also a good idea to check whether you’ll be required to pay Lenders Mortgage Insurance (LMI) or stamp duty2. You may have avoided these the first time around but your circumstances could be different this time.
Top tips to keep in mind
Now, just to make sure you have all the information you need to tackle refinancing, we’ve got a few top tips to keep in mind.
1. Keep an eye on the interest rates
If you’re considering refinancing soon, monitor current interest rates to ensure you refinance at a good time2. While you may not have much control over this if you’re on a fixed rate home loan, it still pays to stay up to date with home refinance rates to be as prepared as possible.
2. Check your home’s equity
It’s also a good idea to enquire about how much equity you have in your home before refinancing to ensure you can still avoid paying Lenders Mortgage Insurance2.
3. Don’t forget the comparison rate
Now you might already know this one if you’ve bought a house before, but, even though you’re refinancing, it still pays to factor in the comparison rate. This is a true indicator of what you can expect to pay when refinancing your mortgage, as the comparison rate factors in application fees and other charges.
Time to refinance
Just as you would have conducted a range of research, asked lots of questions and carefully thought through your decision when you took out your very first home loan, it pays to follow this same process with refinancing your home loan.
Wanting to learn more about the home loans on offer? Queensland Country Bank offers both fixed and variable home loan options.
Terms and conditions of Queensland Country Bank’s Variable and Fixed Home Loans apply. View the relevant TMD’s available at queenslandcountry.bank. Normal lending criteria, terms, conditions and fees apply and are available on request.
General Advice Warning: This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider the appropriateness of the information provided. In particular, you should seek independent financial advice.
Sources
1Gerv Tacadena, 2022, Ultimate guide to refinancing your home loan, Your Mortgage, https://www.yourmortgage.com.au/refinancing-home-loans/step-by-step-guide-to-refinancing
2Rebecca Pike, 2023, How to refinance a home loan, Finder, https://www.finder.com.au/how-to-refinance-your-home-loan