It's important to regularly review your home loan to make sure it still works for you. If you’re thinking about switching home loans, here’s our easy guide to how refinancing works.
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How to refinance your home loan
What’s refinancing?
In a nutshell, refinancing means moving your home loan from one lender to another.
Essentially, when you refinance to another lender, it’s considered a whole new loan to them. Because you’re not buying a new home, the process doesn’t involve another vendor or settlement agent, although you do still need to get the property valued.
Why refinance?
Things are always changing, so it’s a good idea to make sure your home loan is keeping up with your lifestyle and needs. Learn more about the benefits of refinancing and why you might want to look into it.
Can I refinance with the same lender?
If you’re swapping to a different type of home loan, changing your repayments, or splitting and combining loans – all while remaining with the same lender – we call this a loan transfer.
Before you decide to refinance, it’s worth looking at what your current lender is now offering because there might be a new home loan with more flexible features or add-ons that can help you meet your goals.
Check with your current lender before you refinance, they might have another home loan option that's more suitable for you.
How do I refinance my home loan?
Chat to a lender or broker
They’ll be able to look at your personal situation, including why you want to refinance and the potential benefits, while taking your finances into account. They can also outline what’s involved, guide you through the steps in more detail and be on call when you need them. They can help you specifically to:
- Negotiate with your existing lender
If your home loan is with us, we can chat about your interest rate options. - Compare your options
Weigh up different loan types and find one that might suit your situation, needs and objectives better. - Apply for a new loan
It’ll be similar to applying for your first home loan. Don’t forget – refinancing is still subject to lending criteria and can incur other fees and charges.
Things that need to happen during refinancing
Although it’s not a new loan for you, it will be a new loan for the lender you choose. A valuation of your property will be carried out and you’ll usually need to give them statements of your current home loan, as well as a payout figure. This is the amount remaining on the loan that will be paid out to your current lender.
You’ll also need to organise a discharge with your original lender. This can take a few weeks so should be organised early. A settlement date will be organised, which is arranged between the two lenders to transfer the mortgage title.
Thinking about refinancing with us?
Switching your home loan doesn't have to be a hassle. Here's where you can start depending on where you're at:
Is there any reason why I can't refinance?
There are a few factors that could mean you won’t be able to refinance your home loan.
If you don’t have a high enough loan to value ratio (LVR), there could be insufficient security against the new loan and a lender might not approve it. This would happen if the property value has decreased or a new valuation assigns it at a lower value. In this case, it’s worth talking to your lender to find out what your options might be. They could include paying Lenders Mortgage Insurance (LMI), which is insurance to protect the lender if you have trouble making your loan repayments in the future.
You may also be outside the new bank’s lending policy, or you may not meet the bank’s credit assessment criteria.
The cost of refinancing
Discharge costs
Banks will usually charge a fee for you to discharge your mortgage (this is when the bank's name is removed from your property title). The cost varies from bank to bank and usually takes a few weeks to be processed.
Lenders Mortgage Insurance (LMI)
When you refinance your mortgage and your new bank is lending you over 80% of your property's value, you may need to pay LMI.
Breaking a fixed rate loan
If you're currently on a fixed rate loan at your bank, you may incur a charge to break that term early. The cost depends on how long is left to run on your fixed term and what your fixed interest rate is. Your current bank will be able to provide an estimated break cost.
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The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. Also to the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accept no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.