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How to refinance your home loan

Refinancing is essentially trading in your old home loan for a new one, either with your current lender or by switching to a new lender. With interest rates on home loans at record lows at present, a growing tide of homeowners are refinancing to take advantage of lower interest rates and save money, but there are many other reasons to refinance.

By switching to a new home loan, borrowers may also be able to access some of the equity they have in their home (i.e. the balance between the amount of their mortgage owing and the current market value of their home). Home owners can then use the money extracted for various reasons, some popular reasons being:

  • To pay the deposit on an investment property
  • Fund renovations or extensions to their home
  • Consolidate their debts
  • Pay for an extended dream holiday
  • Pay their children’s private school fees or higher education fees
  • Help an adult child with the deposit on their first home

According to recent research from comparison site mozo.com.au, home loan loyalty is costing Australian mortgage holders a massive $6 billion a year. With lenders jockeying for your business, now might be the right time to be looking into refinancing while there are home loans available at under four per cent interest per annum.

Refinancing basically requires going through the same steps as you did when you first bought a home.

Look at your financial situation

Before enquiring with a lender or mortgage broker about refinancing, check your financial status. Pay down any credit card accounts or personal loans as much as possible and gather together the financial paperwork you will need to present to a lender, such as bank statements and tax returns.

Check online to see what equivalent homes to yours in your local area are selling for currently to get a quick estimate of the current market value of your home. Check your current mortgage account to find out the interest rate you are currently paying then use an online mortgage calculator to see how much you could save at a lower interest rate.

See your lender or mortgage broker

If you are happy with your current lender’s services, it may be worth approaching them first to see if you can get a better deal. If not, then a visit to a mortgage broker can save you a lot of time and stress trying to compare home loans yourself. He or she may not necessarily find you the cheapest loan but will advise you on suitable loans for your needs and explain to you how special features, such as offset accounts or split loans can save you money in the long term.

Apply for a new home loan

Once you have decided on the lender who has the best deal for your circumstances, start the application process. Once the lender has conditionally approved your application, they will organise a licensed valuer to appraise your home. If the lender is satisfied with the valuation, you’ll be given formal approval and issued with a mortgage contract to sign. You may also need to sign discharge documents from your current lender.

Preparing for settlement

On settlement day, your old mortgage finishes and your new mortgage begins. Make sure that prior to settlement, you alert your current building and home contents insurer as to your change of lender and also that any mortgage protection insurance you have is carried across.

If you already have mortgage protection insurance with ALI, this won’t be a problem. If you do not have mortgage protection insurance, or yours cannot be transferred to your new home loan, then speak to one of our consultants or your mortgage broker before settlement on your new loan.

Loan Protection Plan is jointly issued by Hannover Life Re of Australasia Ltd ABN 37 062 395 484 (Death, Terminal Illness, Living and Accidental Injury Benefits) and QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545 (Involuntary Unemployment Benefit). It is distributed by Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSG 226403 (ALI). ALI receives commission for each policy sold. Any advice provided is of a general nature only and does not take into consideration your personal objectives, financial situation or needs. You should consider the Product Disclosure Statement when deciding if this product is appropriate for you.

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