Property refinancing

Mortgage refinancing is the process of obtaining a new home loan to replace your existing loan. This new loan is used to pay off the old one, either with the same or a different lender. People refinance for reasons such as obtaining a lower interest rate, changing the loan term, or accessing home equity. The goal is to improve the terms of the mortgage, potentially saving money on interest or repayments over the life of the loan.

Refinancing offers several benefits, including the ability to lower your interest rate, reduce monthly repayments, consolidate other debts into a single loan, or access the equity in your home for renovations or investments. Additionally, you may switch from a variable to a fixed-rate loan or vice versa, which can provide stability or flexibility depending on your financial situation. Over time, these changes can result in significant savings.

Costs associated with refinancing include discharge fees to exit your current loan, application fees for the new loan, and potentially valuation fees for the property. If you are refinancing a fixed-rate loan, break fees may apply if you exit before the end of the fixed term. Additionally, if you have less than 20% equity in the property, you may need to pay lenders mortgage insurance (LMI). It’s important to calculate these costs to determine if refinancing is financially beneficial.

Most lenders require at least 20% equity in your property to refinance without having to pay lenders mortgage insurance (LMI). Equity is the difference between the value of your home and the balance of your mortgage. If your loan-to-value ratio (LVR) is above 80%, you may still be able to refinance, but it could come with added costs such as LMI. The higher your equity, the better the terms you may qualify for.

Refinancing affects your credit score because it involves a new credit application, which triggers a credit inquiry. This can temporarily lower your credit score. Applying for multiple loans within a short time can have a greater impact. It's important to limit your applications and research different loan options thoroughly before proceeding to minimize the effect on your credit score.

The refinancing process typically takes between two and six weeks. This time frame depends on how quickly you can provide the required documents and how efficiently the lender processes the application. The process usually includes submitting your application, undergoing a credit check, providing financial documentation, and possibly getting a new property valuation before the new loan is finalized.

You can refinance to access the equity in your home, which is the difference between your home's market value and the outstanding balance on your mortgage. This is commonly done through a process called cash-out refinancing, where you borrow more than your current loan balance. The extra funds can be used for various purposes, such as home renovations, purchasing an investment property, or consolidating other debts.

The documents required for refinancing are similar to those needed when you first applied for a home loan. These include recent payslips, tax returns, identification documents, and financial statements such as credit card or mortgage statements. You may also need a property valuation if your lender requires it. Having these documents prepared can help streamline the refinancing process.

It is possible to refinance a fixed-rate loan, but it may come with significant break costs if you refinance before the end of the fixed term. Break costs are fees charged by the lender to compensate for the loss of interest that would have been paid over the fixed period. These costs can vary depending on how much time is left in the fixed term and the terms of your loan contract.

There is no legal limit on how many times you can refinance your mortgage, but refinancing frequently can have downsides. Each refinance affects your credit score and involves costs such as discharge fees and application fees. Over time, the costs associated with refinancing can outweigh the benefits, especially if done too often. Most lenders also have a waiting period between refinancing, usually six months to a year.