Refinancing, or mortgage refinancing, is the process of replacing your current mortgage with a new one. The new loan can be for the same amount as your current loan, or for a different amount. The terms of the new loan can also be different from the terms of your current loan. For example, moving your current 30-year loan to a 15-year loan, or having a fixed-rate loan and switching to a variable rate loan. Regardless of what you wish to do, the most common reason why people refinance is to get a lower interest rate. With lower monthly payment, this will save you money over the lifetime of the loan.

The process of refinancing a home loan is pretty similar to the process of getting your first home loan. It is also possible that applying for a home loan refinance may be simpler than your first loan because you already have a relationship with your lender and they have all of your financial information on file.

Before you apply to refinance a home loan, you may want to consider the pros and cons. This will give you a better view of the option and help you make an informed decision.

As mentioned, there are many benefits that come with refinancing your home loan. Some of the pros of refinancing your home loan include:

Getting a lower/better interest rate: Lenders are always looking for new customers. They will offer you a lower interest rate to refinance your home loan than what you are currently paying.

Paying off your home loan early: If you have a 30-year home loan, refinancing to a 15-year home loan will help you pay off your mortgage early. That means you are to get out of debt much sooner than you would have otherwise.

Removing private mortgage insurance (PMI): If you are currently paying PMI (which is required if you put less than 20% down on your home loan), you can eliminate this monthly fee by refinancing your home loan.

Cashout and access equity in your home: When you refinance your home loan, you can also take cash out of your home’s equity. This can be used for home improvements, investments, or other purposes.

Consolidating debt: Many homeowners take advantage of refinancing their home loans to consolidate other debts such as high-interest credit cards, auto loans, and student loans into one monthly payment.

There are also some potential drawbacks that come with refinancing your home loan. These include:

Possibly paying more in interest: If you refinance your home loan and stretch out the term of your loan, you may end up paying more in interest over the lifetime of the loan.

Higher fees: There are fees associated with getting a new home loan. These can include appraisal fees, origination fees, and closing costs.

Possibility of having to pay LMI again: For someone that doesn’t have an LVR of 80% or less, you may have to pay Lenders Mortgage Insurance again which can be costly.

Understanding the risk, benefits, and process of refinancing is important. But there are other things you need to do in order to make sure that refinancing your home loan is the right decision for you.

Do your research: Consolidate all the details of your current home loan such as the interest rate, fees, balance, and term. Then compare this with any new home loans you are considering. This way you can easily identify what needs to be improved with your current loan to match your personal circumstances.

Talk to an expert: Working with Berwick Mortgages can help you get a clear understanding of what is available to you and what option would work best for you. Our consultants have a wealth of experience and knowledge in the home loan industry and will be more than happy to help you through the process.

Undergo property valuation: If you have owned your home for a while, it is likely that your home has increased in value especially if you have done major renovations. Undergoing a property valuation will give you an accurate idea of how much equity you have in your home which can be used when refinancing.

Apply for a new application: If you have decided to go ahead with refinancing your home loan, the next step is to apply for a new home loan. The application process is similar to when you originally applied.

Prepare your documents in advance: In order to make the application process as smooth as possible, be sure to have all your documents ready.

Wait for loan approval: Once you have submitted your application, all that is left to do is wait for loan approval. The turnaround time for this can vary depending on the lender but it usually takes about six weeks to refinance a mortgage.

Settling your old home loan: The last step is to pay out your old home loan and begin making repayments on your new one. This is usually done by the lender with the help of a solicitor or conveyancer.

The good thing about refinancing a home loan is that you can do it at any time. However, it is favorable to have your home loan refinanced if you have 20% equity in your home or if the market rates have decreased since you got your current home loan. For someone with a fixed rate, you may want to wait until your interest rate lock expires before refinancing as this will save you from paying break costs.

Here are some things to consider before refinancing your home loan.

Compare all costs: This includes the interest rate, fees, and any other costs associated with getting a new home loan. If it makes sense financially, then refinancing may be the right decision for you.

Consider your current home loan: Before anything else, try to go to your current lender and see if you can get a better deal. This can save you both time and money as you don’t have to go through the process of applying for a new home loan. If they are not willing to negotiate, then that is a sign that you should start looking elsewhere.

Consider your Current LVR if LMI is required: If you are looking to refinance to a loan that doesn’t have an LVR of 80% or less, you may have to pay Lenders Mortgage Insurance (LMI). This is something that you need to factor in when considering the costs of refinancing as this can pile up and become quite expensive.

Work with a broker: Having someone who is experienced in the industry can save you a lot of time and hassle. They will be able to guide you through the process and help you find the best deal possible. A broker can also negotiate on your behalf and target to get you a better interest rate.

Accessing the equity in your home loan is actually quite simple. The process of cash out refinancing is simply refinancing your existing mortgage for a higher amount so that you pay off your current home loan and get a cash amount on top. Typically the total amount should not raise your LVR to more than 80% as in a regular mortgage. Over a certain amount most lenders will require you to explain what you want the cash for too.

Applying for a home equity loan or a home equity line of credit can be a great way to get access to funds for various purposes such as home improvements, investments, or even debt consolidation. It is beneficial as you don’t need to sell your home or take out a higher interest loan, such as a personal loan.

For many people, refinancing their home loans can be a great way to save money. However, it is important that you understand all the costs involved before making a decision. Be sure to compare all the different offers from different lenders and see which one is the best for your individual needs.

Know your options by talking with one of our mortgage specialists at Shrii Finance. We provide expert advice and can help you decide if refinancing is the right move for you.