Unlock the Secrets of Refinancing: Everything You Need to Know!

By Deltos Finance on May 2, 2023
A suburban house in Australia that can be refinanced for lower rates or access to home equity

Thinking about refinancing your mortgage? Ensuring you have the right structure and strategy could see you save money on interest rates or unlock equity in your home. But let’s be real—the process can be confusing, especially if you’re a first-timer. We’ll guide you through everything you need to know about refinancing and if you’re still not sure, you can pick up the phone and contact us today

First, what is refinancing?

Essentially, refinancing is replacing your existing home loan with a new one. The goal is generally to obtain better terms, such as a lower interest rate, a different loan term, or different features. By refinancing, you can access a product that better suits your needs, potentially saving you money and allowing access equity in your home.

When you refinance, the lender will pay off your existing mortgage and issue you a new loan. The new loan will have different terms, such as a new interest rate, loan term or payment structure.

Rate and term refinancing is the most common type of refinancing. It involves obtaining a new mortgage with different terms to save money on interest rates, lower monthly payments, or change the loan term.

Another option is to get cash-out refinancing. With this type of refinancing, you take out a new loan larger than your existing mortgage, allowing you to access the equity in your home and receive cash back at closing. You can use this cash to pay for home improvements, repay other debts, or settle other expenses.

Why refinance, and when’s the best time to do it?

Let’s face it: nobody likes paying more than they have to on their mortgage. Refinancing may help lower your monthly repayments and the amount of interest you pay over the life of your loan.

For example, if you took out a mortgage several years ago, when interest rates were higher, it may be possible to refinance at a lower interest rate today. This could result in significant savings over the life of your loan. Refinancing can also give you access to the equity in your home, which is the difference between the current value of your property and the amount you owe on your mortgage. You can use this equity to fund home renovations, pay off high-interest debt or even invest in other properties.

Unsure if today’s the best time to refinance your home loan? Here are some factors to consider when deciding if it’s the right time to refinance:

  • Interest Rates: It is one crucial factor to consider when refinancing. If interest rates have dropped since you took out your original mortgage, it may be a good time to refinance. But, keep in mind that refinancing involves closing costs, so it’s essential to calculate how long it will take to recoup those costs with the savings from a lower interest rate.
  • Credit Score: Your credit score plays a significant role in the interest rate you receive on a refinanced mortgage. If your credit score has improved since you acquired your original mortgage, you may get a lower interest rate this time. Conversely, if your credit score has declined, you may have difficulty qualifying for a refinance or may end up with a higher interest rate than your current mortgage.
  • Equity: The amount of equity you have in your home can impact your ability to refinance. Generally, lenders prefer borrowers to have at least 20% equity in their home to qualify for a refinance.
  • Loan Term: Refinancing can be an opportunity to change the term of your loan. For example, if you have a 30-year mortgage and have been making payments for several years, you may like to refinance into a 15-year mortgage to pay off your loan sooner.

So how to refinance a home loan?

Once you’ve decided to refinance your mortgage, here are the steps you’ll need to follow:

Step 1: Evaluate Your Current Mortgage

Before you start refinancing, you need to understand your current mortgage’s terms and conditions. These include the interest rate, monthly payments and fees or penalties.

If you currently have a fixed interest rate, it’s important to note that you will likely face a break fee for refinancing within the fixed period. It’s important to weigh up whether the potential savings justify breaking a fixed term early. 

Evaluate your current mortgage statement and review the terms and conditions. If you’re unsure about anything, contact your lender and ask for clarification.

Step 2: Check Your Credit Score

As mentioned, your credit score will impact your new mortgage’s interest rates and terms. So check your credit score before refinancing and take steps to improve it if necessary. A good credit score can help you get a lower interest rate, which could save you thousands over the life of your new loan.

Step 3: Shop Around for Lenders

What’s one of the biggest mistakes homeowners make when refinancing? Here it is: not shopping around for the best deal. Never assume that your current lender is the best option. Instead, research different lenders and compare their interest rates, fees and loan terms. A good mortgage broker takes care of this for you.

Step 4: Apply for a Loan

Once you’ve chosen a lender, you must complete an application and provide documentation, such as income statements, tax returns and bank statements. Prepare all the required documentation to speed up the application process.

Step 5: Get an Appraisal

Your lender will require an appraisal of your property to determine its current value. It will also specify how much equity you have and what your new loan amount will be.

The appraisal process typically involves a licensed appraiser visiting your property to assess its condition, location and other factors that could impact its value.

Step 6: Close the Loan

If your application is approved, you’ll sign a new loan agreement and pay any closing costs or fees. Your old mortgage will be paid off, and you’ll start making payments on your new loan.

Remember that closing costs can include fees for property appraisal, title search and legal processes. Be sure to factor these costs into your decision to refinance.

The bottom line of refinancing.

Remember, refinancing is not for everyone. So it’s essential to do your research and evaluate your financial situation before making a decision. If you’re unsure whether refinancing is right for you, speak with a financial expert or mortgage professional. 

We hope this guide has provided valuable insights into the refinancing process in Australia. If you have any questions or need further assistance, please don’t hesitate to contact us. Our team of experienced mortgage brokers is always here to help.

Enquire Now

Find Your Perfect Finance Solution

Let's discuss your finance needs. We’re here to help.

More posts from Deltos Finance

first home guarantee scheme

The First-Home Buyers 5% Home Loan Deposit Scheme Explained

As a first-time home buyer in Australia, one of the biggest hurdles you’ll face is coming up with a substantial deposit. Traditionally, lenders have required a deposit of at least 20% of the property’s value, but what if you could secure your dream home with just a 5% deposit? That is possible through the First […]

costs of buying a house

What Are the Upfront Costs of Buying a Home?

Are you searching for a one-bedroom apartment close to the city or planning to a big house with a garden in one of the best Tasmanian suburbs? Either way, it pays to know the upfront costs of buying a house apart from the home loan deposit. These costs may include government taxes and other associated […]

buying your first home

The Ultimate First-Home Buyer Checklist

Although owning your first property is incredibly exciting, it can also be complicated, time-consuming and a bit stressful. So, today, we’ll make your home-buying experience less confusing, smoother and more convenient. Here’s our ultimate first-home buyer checklist to help you know what to do and expect at every step. 1. Budget for Deposit & Other […]

local mortgage broker benefits

The Advantages of Engaging a Local Mortgage Broker

When you’re in the market for a new home, you’re bound to face several challenges—from overlooking loan comparisons to underestimating additional upfront costs and avoiding other common home loan mistakes. You might also be tempted to go directly to a bank, but there’s a compelling case for choosing a local mortgage broker instead. Today, we’ll […]

first home super saver scheme

Can First-Home Buyers Use Their Super for a Deposit?

You already know what you want for your first home. You even have nailed down the specifics—from the location or suburb to the number of rooms you want. The only problem left is the deposit. Like most Australians, you probably have a difficult time saving enough for the optimal home loan deposit amount.  In Tasmania, […]

regional first home buyer guarantee

A Quick Guide to Regional First Home Buyer Guarantee

It’s no secret that buying your first home comes with certain challenges, especially when you need to pay for a substantial deposit. However, if you’re looking to buy in regional Australia, the Regional First Home Buyer Guarantee (RFHBG) could be the helping hand you need. Today, we’ll provide a quick guide to help you understand […]

stamp duty concessions tasmania

Buying a House in Hobart? Here’s What You Need to Know About Stamp Duty Concessions in Tasmania

When you purchase a house or investment property in Hobart, Tasmania, you will likely pay a stamp duty—just like in all other states of Australia. Stamp duty can be a hefty upfront cost, so you may wonder whether concessions or exemptions are available. Today, we’ll help discuss how stamp duty works, how it is calculated […]

A young couple buying their first home.

Can You Use the First Home Owner Grant as a Deposit?

Dreaming of owning your first home in Australia? While you can use all your savings to pay for your home deposit, you must know that there are government grants that can help lower the initial cost of your first home purchase. Today, we’ll zero in on one of those grants: the First Home Owner Grant […]

how long does it take to refinance a home loan

How Long Does It Take to Refinance a Home Loan?

Switching to a new home loan, also known as refinancing, is a wise move, especially when you want to take advantage of lower interest rates or access the equity in your property. But how long does it take to refinance a home loan in Australia?  Refinancing may seem lengthy and overly complicated, but it can […]

first home owners grant

Five Common Questions About the First Home Owner Grant in Tasmania

Are you considering purchasing your first home in Tasmania soon? Before you apply for home loans, it pays to know that the Tasmanian government offers various grants and incentives to help you save money on your first big purchase. You can start by learning about the First Home Owner Grant in Tasmania. Today, we’ve compiled […]