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5 steps to refinancing

By Andrew Bellino

Are you looking to lower your interest rate, access cash for renovations or switch mortgage companies? If so, then refinancing could be right for you.

Stewart Saunders, Bankwest’s General Manager of Broker Sales, gives his advice on the five key areas of the refinancing process.

1. Calculating the costs of refinancing

While refinancing could save you money in the long run, it’s important to weigh the costs of refinancing against what you could save by switching loans.

“While a lower rate may seem attractive on the surface, don’t forget about the loan’s establishment and ongoing fees, as well as any exit or break costs on your current loan,” says Saunders.

2. Choosing a suitable loan

“With interest rates at a historical low, it’s important to make sure you’re on a good rate,” says Saunders.

In order to help narrow down your options, Saunders says to ask yourself what your goal is; for example is it payment flexibility, or are you after the certainty of a fixed rate?

“In general, variable rate loans tend to offer greater payment flexibility and features, such as redraw facilities or offset accounts, while fixed rate loans offer month-to-month payment predictability. Introductory rates could also help you save money in the short term.”

Make sure you’re also aware of the fees associated with your current and potential new home loan, to ensure you’re getting the best deal overall.

Additional home loan features could help you save money, such as an offset transaction account, which helps put your savings to work and may reduce the interest payable on your home loan.

Other features such as a redraw facility, having the ability to make additional repayments or change the frequency of your repayments could help you to better manage your finances.

3. Gathering documents & completing your refinancing application

Most lenders require that you provide documentation before they’ll approve a loan. To prevent any delays in your application process, gather all your supporting documentation before you meet with your bank or broker.

Some of the documents you’ll need to bring will include:

  • Your identification
  • Proof of income such as tax returns, pay slips and dividend statements
  • Documentation on your existing loan and expenses

“Because applying for a loan can be a daunting process, don’t feel you need to do it on your own. Many banks now offer home loan specialists to help you through the entire application process,” says Saunders.

4. Assessing your refinancing deal

While refinancing is generally a straightforward process, there can sometimes be a few unexpected curve balls.

“In particular it’s important to be realistic about how much you can afford to borrow as well as your home’s value,” Saunders says.

When you submit your application, your bank will run a credit check to help assess if you can afford the loan.

Your bank will most likely also conduct an independent valuation to determine if your property is priced suitably and is acceptable for mortgage purposes.

5. Settling your new mortgage

There’s a few steps left:

  • Once you get approval for finance, your new lender will send you contracts to complete and return;
  • They will also contact your previous lender to organise your refinancing to take place;
  • Once your previous lender has received payment on their loan, the new lender will take possession of your Certificate of Title.

At this stage, the refinancing process is complete.

Whether you’re looking for flexibility, a lower interest rate or to consolidate your debts, refinancing could help you achieve your goal. As everyone has different needs and objectives, be sure to consult with a financial advisor who can give you advice on your particular situation.

Article courtesy of realestate.com.au

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