Refinancing is becoming a more popular option for homeowners who are looking to secure the best home loan, but if you are a first-time homeowner or haven’t refinanced before, this can be quite a daunting process as there is a lot of misinformation surrounding the topic.
At Melbourne Finance, we have decades of experience in helping homeowners refinance their mortgages so they can achieve their financial goals.
What is refinancing?
Refinancing is essentially changing your existing home loan to a new one with better rates and conditions. It is a lot less stressful than applying for your first mortgage because your chosen lender exclusively handles it and there is less paperwork without a property purchase involved.
What are the benefits of refinancing?
Often people refinance to achieve personal or financial goals. Before considering refinancing, we recommend having a clear mindset and plan for your future as a best practice. Refinances can be very beneficial for a variety of reasons; when you refinance, you can:
- Consolidate debt
- Improve your loan features
- Access equity to finance another investment or renovation
- Lower your rates and fees
- Save money
Why should I refinance?
You should consider refinancing when you qualify for a significantly lower rate, especially if you no longer need LMI, or if your lifestyle has changed (i.e. had a baby, got a promotion, or bought an investment property). When you refinance, there should be a clear motivation and reason for refinancing as there are many enticing offers out there, and too many refinances can harm your credit score.
With an everchanging property and financial market, refinancing also helps you achieve financial goals and increase your wealth. Previously people have been scared to refinance their mortgage because they are worried it will affect their credit score. While it may effect your credit score a little bit initially, it will likely improve it in the long run. When you refinance, you can select from loan types that may have a lower interest rate or better loan features such as redraws and offsets, which can assist you in managing your wealth further down the track.
How much can I borrow?
Just like the first time you applied for a home loan, your income, expenses and credit score make up a large chunk of your ability to refinance. Generally, the more income you have and the fewer expenses you have, the more you will be able to borrow as long as you have a credit score above 700. However, there are three other things that also affect how much you can refinance:
- Your property’s value and loan to value ratio: Most lenders will let you refinance up to 80% of your property’s value but some may let you borrow up to 95% with LMI, if you have a good credit report.
- Current interest rates: The lower the interest rate means your repayments will be less and allows you to borrow more. At Melbourne Finance we want to ensure that you have the best interest rate for your home loan.
- Current circumstances: If your circumstances have changed since applying for your previous loan, it will likely affect your borrowing. Similarly, the current property market and restrictions may also affect your borrowing capacity.
Why should I not go to a bank?
Most mortgage brokers are not tied to banks, so we can scour the market for the most suitable home loan to meet your financial needs. Banks often recommend going to a broker to refinance as they can only offer limited products, and they may not be able to offer you the best deal. Having a choice about your interest rates and home loan features is essential to ensuring financial success. At Melbourne Finance, we care about your situation, and we don’t treat you like an application number. If you choose to refinance with us, our expert team will find the best deals, make recommendations and submit your home loan applications and discharge forms when needed so you don’t have to stress about the paperwork.
What do I need to refinance?
Similar to your home loan application, there are a few things you will need to submit for the refinance application, including:
- Income statement
- Assets statement
- Knowledge of total expenses
- 2 forms of identification: usually a driver’s licence and a medicare card.
- Credit history report
If you originally financed with Melbourne Finance, we may have some of that information in our customer portal, which helps get the refinance application started.
How often should I consider refinancing?
As a homeowner, you can refinance every 12 months but it is not advised to do so as it will impact your credit score. The rule of thumb is you should consider refinancing is every 2-3 years as often your situation will have changed within that time.
A good broker will ask you upfront what your goals are to ensure you take out the right home loan for both your financial and personal needs, so you won’t need to refinance until your financial needs change.
How much does it cost to refinance?
Despite some advertisements saying it is cost-free, it should be noted that refinancing is not free, and there are costs involved. At Melbourne Finance, we want to be as transparent as possible with you about these costs and how brokers get paid. However, in some circumstances, some lenders will offer you Cashback which is generally paid within 2 months of settlement. This cashback usually covers the costs below.
Some of those costs involved when refinancing include:
- Discharge fee
- Title registration
- New home loan application charges often called origination charges
- Settlement fee
- New government charges such as stamp duty and mortgage registration fees.
- Potentially Lenders Mortgage Insurance (LMI) if you are applying for a loan over 80%
Often brokers will also charge a property valuation fee, but at Melbourne Finance, we consider this to be a necessary part of applying for a home loan or refinance and offer professional valuation at no extra cost.
It is also important to note as homeowners, you do not pay mortgage brokers. We take an upfront commission from lenders when we process your loan application.
Where can I get started on refinancing?
Right here! At Melbourne Finance, we have an expert team of home loan specialists and a well-established network with all major lenders, so we can find you the best offer when you decide to refinance. If you want to get started right now, fill out this form!