Refinancing 101: The basics of refinancing your mortgage
Are you looking to refinance your mortgage to take advantage of the low interest rates? Read on.
So what?
Interest rates are at its lowest in Australia thanks to the Reserve Bank of Australia keeping the cash rate at its lowest in modern times for over 132 months. Taking advantage of this by refinancing your mortgage, you will:
- Decrease your repayments;
- Consolidate your loans;
- Obtain lower interest rates and/or associated fees; and
- Get cash back from certain lenders.
Disclaimer
This post does not discuss penalties involved with breaking fixed mortgages. This is something that will need to be discussed with your banker. Also, we are not a financial adviser. This information is for general information only. It should not be read as a professional and personal advice to you from us.
Ways to refinance
There are two main ways to refinance your mortgage:
- Broker: Using a broker to refinance is the simpler of the two options provided that you find a good mortgage broker. A broker will complete most of your application as well as deal with potential lenders.
- DYI: This do it yourself option requires you to research and find suitable lenders and complete the application yourself. You will need to deal and negotiate with potential lender.
Get your ducks in order
You will need to get your ducks in order regardless of which way you choose to go. The following information will be required at minimum:
- Your details
- Employment
- Family information
- Income
- Expenses
- Assets
- Liabilities
- Property being refinanced
DYI steps
The following are the steps you will take once you have your ducks in order:
- Lender search: Look for potential lenders by enquiring with banks directly and/or using comparison sites
- Shortlist lenders: Compare prices, costs, and benefits. Look for general and first-hand reviews of shortlisted lenders. Consider their responsiveness and professionalism when you enquire them directly.
- Apply: Fill out and submit the application from the chosen lender using the information you gathered above.
- Contract review: Engage a solicitor to review the contract.
- Approval: Obtain approval from the chosen lender.
- Settlement: Mostly done behind the scenes.
- Pay: Set up an account to make your recurring repayments.
My experience
We’ve tried both methods. Either way, it’s quite a bit of work even if you have all the information. Our approach is to alternate going with a broker and DYI.
What now?
- Use the Moneysmart’s mortgage calculator at Choosing a home loan – Moneysmart.gov.au to compare your current mortgage to what you can obtain from the market.
- Work out whether the difference is enough to justify refinancing your mortgage.
- Check out The Barefoot Investor by Scott Pape for a general guide on personal finance which covers the topic of getting a better handle of your finances.