Refinancing

Are you planning to buy an investment property or finally considering the renovation you’ve always dreamed of? Or perhaps you are looking for a better interest rate to lower your repayments? Well, refinancing might be the answer you were seeking to meet these needs!

SO WHAT IS REFINANCING?

It is essentially the process of paying out your current home loan by taking out a new loan. This can be done with a new loan from your existing lender or through a different lender. Refinancing is usually good for people who find their previous loan not feasible enough for their changed situation.

WHAT CAN YOU USE IT FOR?

	Paying off all debts by rolling them into one loan
	Obtaining a cheaper rate
	Renovation and home improvements
	To access cash for vehicle or appliance purchase
	To switch from a variable rate to a fixed rate role

BENEFITS OF REFINANCING

	Peace of mind with fixed monthly repayments
	Reduced interest rate and monthly payments
	Flexibility to pay off loan quicker
	Consolidation of debts (credit cards, personal loans and other debts)
	Unlocking the equity in your current property to finance your plans

DRAWBACKS OF REFINANCING

	At times, short-term costs exceed the long term savings
	Paying interest on the balance for a much longer period

ADDITIONAL COSTS ASSOCIATED

Borrowing Costs

During refinancing, the new lenders often charge a range of upfront fees which include:

	Loan application fee
	Valuation fee for a professional property valuer
	Settlement fee

Exit Fees

When you pay off your loan early, say in the first 3-5 years, then exit fees is applicable. It is either a percentage of the loan balance or a fixed amount.

Stamp Duty

Stamp duty is the tax charged by the state government on your mortgage and is calculated against your loan amount. If refinancing increases the size of your home loan, you will have to pay stamp duty.

Lenders Mortgage Insurance (LMI)

LMI is paid by the borrower to insure the lender of any risks that may be associated in case the borrower defaults in his repayments. If you are borrowing 80% or more of your property’s value, then LMI would be applicable to you. Also, LMI is a non-transferable payment, which means that if you refinance you’ll have to pay LMI again.

Mortgage Registration Fee

Mortgage registration fee is paid for registering your loan onto the property’s title record to the Land Titles Office or equivalent.

PROCESS OF REFINANCING

STEP 1
Research

Explore the costs, fees or penalties that you might have to pay to your current lender, such as deferred establishment fees (DEF) if you choose a different lender.

STEP 3
Pick the right loan

Create a ‘shopping list’ of the features you want and then choose a loan that fits all or most of these features. You can take help from a mortgage broker to discuss your options.

STEP 2
Consider your reasons

Evaluate your motivation behind refinancing a loan- is it because you are looking for a lower interest rate, accessing equity for emergency cash needs, wanting to switch to a different loan with better product features or consolidate your debts?

STEP 4
Submit the application

The approval process is going to be very similar to your previous loan process unless you’re going for a different lender, in which case you’ll need to provide the following paperwork:

Recent pay slips
Documents of your existing loans
Your latest council rates notice
Evidence of the building insurance policy

STEP 5
Valuation

Valuation of your current properties will be done by the new lender and it is often chargeable, anything between $200 and $300.

STEP 6
Finance approval

At this point, your lender gives you a formal or unconditional finance approval and will instruct a solicitor to prepare the loan documents on their behalf and get them approved and signed by you.

STEP 1

Research

Explore the costs, fees or penalties that you might have to pay to your current lender, such as deferred establishment fees (DEF) if you choose a different lender.

STEP 2

Consider your reasons

STEP 3

Pick the right loan