Refinancing your home loan doesn’t have to be difficult. Find out how you may save money by taking advantage of a lower rate today. Read on for Monzi’s accessible guide to refinancing your home loan. We’ll cover the costs, rates, pros and cons that you must consider. Let’s go.
Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.
What is home loan refinancing?
Home loan refinancing is the process of changing from one mortgage loan to another. This may be with the same lender or with a different lender entirely. While you may refinance for many reasons, it is most commonly done to allow borrowers to access lower interest rates on their home loan as a way to reduce costs. However, refinancing may also allow you to consolidate debt or unlock equity in your property.
So, now that you understand what home loan refinancing is, why don’t you dig deeper into Monzi’s refinancing guide. Read on as we explore all the information that you might need to consider before taking the leap to refinance your mortgage.
How does refinancing your home loan work?
OK, let’s begin with an explanation. If you’re looking to refinance your home loan, then there are typically a few steps that you must complete along the way. As a guide, the process may look like this:
- Assess your loan: consider how much you owe, what your current interest rate is, any features you have access to and how long you have left to run.
- Compare, compare, compare: see how your current loan stacks up with other products on the market by conducting a home loan comparison. If you’re paying a substantially higher rate, then it might be time to refinance.
- Approach your lender: get in touch with your lender to ask for a lower rate. With this, it’s usually a good idea to go in armed with the facts. In other words, ensure that you can show that you are paying a higher rate than you should be. Do your research to find the best home loan rates on the market.
- Do your calculations: if your lender doesn’t budge, then you can look at your alternatives. With this, consider the costs involved as well as how much you may save with a new home loan.
- Get in touch with your new lender: all that’s left for you to do is apply. If your application is approved, then you’ll need to pay any fees associated with exiting your mortgage with your current lender.
Note that there may be other steps involved. This is simply a quick outline of how you may refinance your home loan.
How much does refinancing a home loan cost?
Refinancing sounds great, right? You apply for a new home loan with a lower rate and as a result, you’re able to save money on your repayments. Unfortunately, though, it’s not quite that easy. In fact, there are costs of home loan refinancing that you must consider.
In most cases, these costs will come in the form of fees. To give you an idea, some of the most common fees that you’ll encounter include:
- Discharge/exit fees paid to your current lender for breaking your mortgage.
- Application fees.
- Valuation fees.
- Establishment fees.
- Lenders Mortgage Insurance (won’t apply in all situations).
- Government charges related to registering your new mortgage.
Given this, it’s not uncommon for the costs of refinancing to range into the thousands of dollars. As a result, even if you do save money on your interest, it may take you several years to recoup the costs of refinancing. However, over the course of a 20-30 year mortgage, this may not be a significant issue.
Why should I refinance?
In most cases, refinancing is done to save money on your repayments. In other words, you’re trying to to get a more competitive rate. However, that may not be the only reason. Other reasons that individuals refinance their home loan include:
- Debt consolidation: if you’ve got an outstanding car loan, personal loan or credit card debt, then you may potentially roll that into your home loan by refinancing.
- Renovations and upgrades: looking to take your home to the next level? You may be able to access the equity in your home to cover renovation costs. In other words, you may finally be able to add that extra bedroom or swimming pool.
- Bonus features: refinancing could allow you to access features such as additional repayments and offset accounts which may make your loan more manageable.
If one of these reasons fits your needs and objectives, then refinancing may be an option for you. However, make sure that you consider the costs and potential consequences before doing so. If you’re unsure, then don’t hesitate to reach out to a qualified mortgage advisor.
Pros and cons of home loan refinancing
Firstly, let’s begin with the benefits of refinancing your loan. As a guide, these may include:
- You may save money on interest and lower your regular repayment amount.
- It may allow you to consolidate your debt to avoid paying high rates on credit card debt or similar products.
- It may allow you to pay off your loan sooner.
- You may access a range of additional features that weren’t offered on your original loan.
- You may access your existing equity to renovate or invest.
On the other hand, potential drawbacks of refinancing include:
- You may be required to pay a range of fees to apply for a new mortgage and break your existing mortgage.
- Applying for a new home loan may have an adverse impact on your credit score.
Note that these pros and cons may or may not apply to your current situation. This is simply an outline of commonly cited pros and cons that you may need to consider.
Should I use a home loan refinancing calculator?
If you’re starting to entertain the idea of refinancing your home loan, then using a mortgage loan calculator is a great place to start. Depending on the calculator that you use, you may be able to determine how much you can save as well as how long it will take you to recover the costs involved in refinancing.
Most calculators will ask you to enter the key details of your current loan (e.g. rate, balance, term) as well as the details of your new loan. From there, it will spit out a range of figures that you can use to determine your potential savings and the overall viability of refinancing. However, note that all loan calculators are only able to provide estimates and your actual savings may vary.
To get started, check out Moneysmart’s easy to use Mortgage Switching Calculator today.
What are the requirements for home loan refinancing?
If you apply for a new mortgage to refinance, then the requirements will typically be similar to those you encountered when you applied for your original loan. However, a key difference may be that you may not be required to pay a deposit.
In any case, to be approved, you will need to demonstrate that you are in a secure financial position. With this, lenders will require you to provide documents that outline your income and expenses as well as your assets and liabilities. Moreover, they will also consider the value of your current property too.
Having said this, Monzi cannot speak to what the exact requirements may be regarding your income or credit history. As a result, you may need to contact a lender directly to determine your eligibility.
Home loan refinancing with a guarantor
Guarantor home loans are often an accessible option for borrowers who can’t pay a 20% deposit but would like to own a home today. With this, the good news is that there may be refinancing options available to you.
However, refinancing with a guarantor may be tricky and lenders may vary in their approach. Moreover, you may also need to consult with your guarantor before applying for a new loan as they will also be required to co-sign this loan.
Given this, Monzi is unable to outline your guarantor home loan refinancing options. Instead, you may need to consult with a lender directly. Otherwise, you may need to wait until you’ve built up at least 20% equity in your home and your guarantor can be released.
How long does refinancing a home loan take?
The easy answer is that times will vary. However, as a guide, from start to finish, the process will usually take anywhere from two to six weeks. With this, the process can be divided into two distinct stages: before refinancing and refinancing.
Beginning with before refinancing, this refers to the time you take to research and decide on your new loan. As a guide, this time may consist of phone calls with other lenders, using comparison websites, reading over your current loan contract and preparing your new application. Given this, you have direct control over how long this will take.
The processing time of your application, however, is out of your hands and may take several weeks. Lenders will need to assess your application and may conduct a valuation on your property. For a fast outcome, ensure you provide all the necessary documents when you apply. Again, though, remember that between applying, receiving pre-approval on your home loan and reaching a settlement, the process may take several weeks.
Can I refinance to access equity?
Yes, you may be able to release equity in your home by refinancing a loan.
Accessing equity via refinancing may be an option if you are short on cash but are looking to purchase a new vehicle, fund renovations or make another significant purchase. However, the amount of equity that you can access will depend on your loan to value ratio. As a result, it may be wise to have your property valued so that your lender can calculate your LVR. That may decide how much equity you can access.
Note that if you have less than 20% equity in your home, then it’s unlikely that you will be able to unlock these funds via refinancing.
When is it worth refinancing a home loan?
Are you asking if refinancing your home loan is a good idea? Realistically, the answer to this question is as simple as do the benefits outweigh the costs.
To give you an idea, refinancing may be worth it if:
- You can reduce your current interest rate: lenders usually advocate for refinancing if you can lower your rate by 2%. However, a saving of as little as 1% may be viable in certain situations too.
- You can take advantage of additional features that make repaying your loan more manageable or flexible.
- Refinancing allows you to shorten your current loan term so that your loan is paid off sooner.
However, note that this is general advice. Whether or not refinancing is worth it for you will depend on your financial situation. As a result, it’s up to you to decide whether or not it’s worth doing. If you are unsure, it’s never a bad idea to seek professional advice.
When is it not worth it?
While refinancing may be an option in many scenarios, there are some situations in which it will not be an appropriate financial decision. As a guide, this may include:
- You have almost repaid your loan: if you’ve only got a few repayments to go or you’re nearing the end of your loan term, then you may be better off sticking with your existing mortgage.
- You can’t afford the fees: given the fees involved, refinancing may set you back a $1,000 or more. If you don’t have the cash to cover this, then you won’t be able to refinance.
- Your loan to value ratio exceeds 80%: if you paid Lenders Mortgage Insurance on your initial low-deposit home loan, this cannot be transferred. Instead, you’ll have to pay for LMI all over again. As a result, refinancing may not be appropriate until you’ve built up sufficient equity.
What should I know before refinancing my mortgage?
Before you begin, you must have a complete understanding of your current financial situation, your goals and objectives, your existing home loan and any costs associated.
Firstly, looking at your financial situation and goals, you must know why you are refinancing. Are you looking for a lower rate? Maybe you want a loan that offers features such as offset accounts? Or maybe you want to consolidate some outstanding debt into your current home loan? Whatever your reason, ensure you have a clear idea, as this should inform your refinancing decision.
Next, review your loan contract thoroughly. Understand how much you are currently paying as well as any fees that your lender will charge you if you decide to break your current loan. Knowing your current loan well makes it much easier to compare it to other products on the market.
Finally, you must have a grasp of how much refinancing will cost you. In many cases, refinancing will cost you in the short-run, but these losses will eventually be offset by the gains you make through lower rates. As a result, ensure you have the cash-on-hand to pay any fees required to break your current loan or submit a new home loan application.
Will home loan refinancing hurt my credit score?
In the short-term, refinancing your home loan may affect your credit for a few different reasons.
Firstly, to get a new loan, a hard credit inquiry will be conducted and will be listed on your credit report. Multiple applications for a new home loan in a short space will therefore lead to your credit score taking a hit. In addition to this, if you close an existing account (e.g. your current mortgage), then this may impact your credit score by lowering your average age of credit.
However, any detrimental impacts to your credit score may be offset by potential savings. Moreover, if you build a strong repayment history on your new loan, then, over time, your credit score should rise again.
Is it better to refinance or just pay extra principal?
Unfortunately, Monzi cannot say with certainty which option may be the best for your financial situation. However, it’s worth noting that, in some cases, making additional payments towards your mortgage may be one alternative to refinancing.
This is because reducing your outstanding loan balance reduces the amount of interest that you pay. After all, interest is calculated as a fixed percentage of your loan balance. As a result, given the costs associated with refinancing, if you’re only looking at a small saving, then making additional payments may be a more appropriate way to reduce your costs or shorten your loan term.
Note that this only applies if you are looking to refinance to access a lower rate. If you are refinancing to unlock equity or consolidate debt, then you can disregard this information.
Finally, if you would like to get a better idea of how additional payments may impact your costs, then consider finding an extra loan payment calculator online.
Should I refinance with the same lender?
In short, this may be an option. However, Monzi cannot provide specific advice as to whether refinancing with your current lender will be your best choice.
On the one hand, remaining with your existing lender is typically easier. Given that your details are already on record, you’ll likely save time on paperwork. In addition to this, you can avoid the hassle of having to get your head around a new lender’s policies or systems.
On the other hand, if you can access a better deal elsewhere, then it may be worth taking the plunge and refinancing with a new lender. Given this, it pays to shop around. While you may currently have a mortgage with a bank, investigate specialist mortgage lenders or online lenders to see the kind of rates on offer. In other words, explore every avenue to try and save yourself money.
At the end of the day, refinancing is about finding the best deal that you can. If you can do this by remaining with your current lender, then, by all means, do that. However, don’t be afraid to take a chance if any opportunity presents itself.
Can I refinance my mortgage online?
If your current mortgage loan is with a bank and you’re looking to refinance, then one option could be to apply with an online lender. In short, these lenders have grown significantly in popularity. Why? Well, allow us to explain.
Firstly, as they do not operate branches, they have lower overheads. As a result, they may offer more competitive rates to help you reduce your total loan costs. In addition to this, they’re often flexible and can offer a range of handy features to make your home loan repayments a breeze.
Given this, when it comes time to refinance, don’t get locked into thinking traditional lenders are your only choice. While they may end up being the option you go with, at least examine the rates and terms you may be offered online.
Can I refinance other loans?
While home loan refinancing is arguably the most common form, you may also be able to refinance other outstanding debts (e.g. credit card debt or car loans). To do this, you may need to contact the relevant lender or financial institutions to determine your options available.
As a guide, refinancing a car loan will usually be similar to refinancing a home loan. However, with credit card debt, it may be a little different.
In short, you’ll typically have two options. Firstly, you can refinance with a debt consolidation personal loan. In short, this loan provides you with the cash you need to pay off your current debts. As a result, you’re left with one, fixed-term loan to repay which may remove the headache of managing your debts.
In addition to this, you could also complete a balance transfer to consolidate credit card debt. This will involve transferring your existing credit card debts onto a new card at a lower rate. In many cases, individuals will take advantage of lower introductory rates to make repayments more manageable.
Not ready for home loan refinancing yet? Explore your home loan options
While refinancing may be available to current homeowners, if you haven’t yet dipped your toe in the water, that’s OK. Monzi’s here to provide you with a quick outline of your home loan options. As a result, when you’re ready to take out a mortgage, you’ll have a good idea of what to look for.
As a guide, home loans may come with interest in three forms:
- Fixed: your rate is locked in, meaning you know exactly how much you will pay. The key benefit of a fixed-rate home loan is the certainty it provides.
- Variable: a variable rate mortgage may fluctuate as the underlying market conditions change. As a result, rate movements may be favourable or unfavourable. Variable-rate loans are often praised for their flexibility.
- Split: split-rate loans allow you to get the best of both worlds. Experience the flexibility of a variable rate while simultaneously experiencing the certainty of a fixed-rate. Best of all, you may get to decide how it’s allocated (e.g. 50% fixed, 50% variable).
Note that a variable rate is the standard form that your home loan will take. With this, split facilities and fixed rates will typically only be available for one to five years before reverting to the standard structure. Moreover, you may need to pay a fee to access these options.
What additional features should I look for in a home loan?
If you’re looking to refinance, it’s usually because of the costs. However, refinancing may also allow you to access a range of additional features that you may not have been available to you previously.
As a guide, when you weigh up your home loan refinancing options, you may want to consider features such as:
- Offset accounts: an offset account acts like a savings account. It’s linked to your home loan and will reduce your interest payment by offsetting your outstanding loan balance.
- Redraw facilities: this feature allows you to take back additional payments that you have made should you need a little extra cash to cover some expenses.
- Flexible repayments: do you have the option to make extra repayments on top your regular amount to pay off your loan sooner?
- Repayments holidays: if you make a number of additional repayments, then you may be eligible for a repayment break in some scenarios.
Can I refinance my home loan through Monzi?
Here at Monzi, we’ve done our best to provide you with an easy and educational guide to refinancing your home loan. That said, we are not mortgage lenders. Nor are we lenders of any kind. Instead, we’re just a quick lender-finder service for Aussie borrowers.
If you’re unsure of what that means, it’s quite simple really. Every day, we receive applications from people all over the country. From there, we do our best to pair these applicants with an available lender from our network who may offer personal loans up to $10,000.
Ultimately, Monzi’s there to make your life a little less stressful when you’re short on cash. Rather than spending your time trying to sift through an endless array of lenders, just apply with Monzi. We may be able to match you with an Aussie credit provider in just 60 minutes. Let’s go.
Personal loans up to $10,000? How do I apply?
You can apply for quick cash loans in minutes with Monzi today. However, before we get to that, make sure you check these four boxes to confirm you’re eligible:
- 18 years of age or older.
- Australian citizen or permanent resident.
- Have an active mobile number and email address.
- Have an online bank account, where your income is deposited, with at least three months of history.
Now that we’ve got that out of the way, you can apply for a loan in minutes. All you need to do is follow these four steps and you may be paired with an available lender today:
- Choose your loan amount (e.g. $5,000).
- Complete the online application form.
- Settle in while Monzi takes over and attempts to pair you with an available lender from our network.
- Keep an eye on your phone as we’ll be in touch with an outcome. If we match you with a lender, then they’ll reach out to begin the next stage of the process.
Note that while Monzi may pair you with a lender, approval is never certain. Your lender will conduct an assessment to determine your outcome. Moreover, they reserve the right to deny applications where they see fit.
We pride ourselves on our ability to connect with our users. So, if Monzi has piqued your interest and you’re curious about our organisation or service, then feel free to get in touch. Send through any questions that you might have to firstname.lastname@example.org and we’ll do our best to respond pronto.
However, bear in mind that Monzi is only a lender-finder service. As a result, we will be unable to answer any questions that you have regarding your home loan or refinancing options. Instead, you must contact your lender or other mortgage lenders to determine what may be available to you.
Apply with Monzi’s lender-finder now
While we cannot offer home loans or refinancing options, at Monzi, we love connecting borrowers like you with fast Aussie lenders. So, if you need a loan today up to $10,000, apply now. With our easy application process, you could have it done and dusted in minutes. Moreover, you may be matched with a lender before you know it.
Ready to go? Scroll up to our loan slider or simply click the “Apply Now” button. Get Monzi on your side today.