What is a home loan refinance?

What is a home loan refinance? 

When you refinance your home loan, you’re essentially switching from your current home loan to a new one with different rates or terms. You’ll also be moving from one mortgage lender to another. 

Most borrowers who refinance their home loans do it to get more flexibility, lower interest rates, more favourable terms, or access to additional loan features. Some who aren’t satisfied with their current lender take refinancing their mortgage as an opportunity to find one that better suits their needs. 

How does a home loan refinance work? 

Just like any loan, the first thing you need to do is apply for a home loan refinance. The application process is similar to a typical loan. The requirements for home loan refinance depend on the lender but generally, you must provide personal information, proof of income, a list of debts and liabilities, and current assets. 

After your home loan refinance is approved, you will need to contact your old mortgage provider to arrange for the closure of your existing home loan. Once your old home loan has been paid off by your new lender, you’ll start making repayments towards your new home loan with your new lender.

The home loan refinance process usually takes a few weeks to a month. The whole process could be shorter or longer depending on how quickly you can provide the requirements to your new lender. 

Advantages of refinancing your home loan 

Home loan refinance can be beneficial for borrowers under the right circumstances. Here are some of the many reasons why people are choosing to refinance their home loans: 

Take advantage of lower interest rates 

Interest rates may have gone down significantly since you last applied for a home loan. Or you may be in a much in a much better financial situation giving you a higher chance at a home loan with lower rates. Either way, it may be time to consider refinancing your home loan. By lowering your interest rate, you could lower your repayment amount and potentially save thousands on interest. 

Change your loan term 

With a home loan refinance, you can opt to reduce the length of your loan so you can own your home sooner. Shortening your loan term could mean an increase in repayments as you’ll be paying off your loan amount owing in a shorter period. But a shorter loan can also help you save on interest costs over the life of the loan.  

Alternatively, you can lengthen your loan term to lower your repayment amount to be more manageable. If you find yourself in a more difficult financial situation, reducing your repayments can help you keep up with other bills and debt payments. 

Get better loan terms and features 

By switching home loan providers, you can get a mortgage that’s more flexible and better suited to your needs now. Use a home loan refinance to your full advantage by getting useful loan features such as redraw facilities and offset sub-accounts. Talk to your lender to know about what features can help you get the most out of your home loan refinance. 

Disadvantages of home loan refinance 

Refinancing your home loan can have some drawbacks. Consider the following before you apply for a home loan refinance: 

You may have to pay additional fees 

Switching home loan providers will likely have additional costs such as application fees, exit fees for your current mortgage, valuation fees, settlement fees, and more. Check your existing loan agreement to see what fees you may incur when you break off from your current mortgage so you can weigh your options properly. 

The home appraisal could be lower than expected 

Some lenders may request an updated home appraisal to determine the property's current value. A professional appraiser will use comparable sales data, and current market trends, and take into consideration your home’s size and features to determine the appropriate value. If the appraiser comes back with a low value, this could negatively affect your chances of getting lower rates or better terms on your home loan refinance. 

Where can you get a home loan refinance? 

Finding the perfect lender is one of the hardest parts of refinancing your home loan. If you’re looking for a mortgage refinance with low rates, favourable terms, and a quick application process, get in touch with loans.com.au!  

Choose from our range of home loan refinance solutions and find one that suits your needs perfectly. If you’re ready to start your refinance journey, you can apply online today!