So you have been caught up in this seemingly never ending cycle of rate rises? Or maybe you’ve seen some of those enticing cashback offers being advertised by lenders for refinancing and you’re thinking about how you can get a slice of the pie?
If you’re thinking it might be time to refinance your home loan but are too afraid of dealing with the lenders and the endless amounts of paperwork, we’ve got you covered.
Firstly, we will help you understand what refinancing is, talk you through the process involved and when it is a good time. The best bit? You can skip right to the end and book a time with a Finspo expert whose mission is to find a better deal for you and make the process as simple as possible. In no time you could be saving thousands of dollars each year and shaving years off the life of your home loan.
Sound good? Read on!
What does it mean to refinance your home loan?
Refinancing is the process of replacing your current home loan with a shiny new one (that works better for you and your situation).
There are two types of refinances:
- External refinance: this is when you say goodbye to your current lender (and home loan) and switch to a new lender (and new home loan). People typically do this to get a lower interest rate, reduce their repayments or access equity in their property. More on that later.
- Internal refinance: this is when you stay with your current lender, but make some changes to your loan. Potentially you extend your loan term, switch your interest rate (from fixed to variable and vice versa) or maybe you switch to interest only repayments.
So, what is actually involved in refinancing?
This is the part where people typically give up because it is seen as being “too hard” or taking “too long”. But it doesn’t have to be. With the help of a Finspo Expert, you may be surprised at how little you have to do and how easy they can make it for you.
We’ve got a step-by-step refinance guide available for you, which we have summarised below:
- Know your goals: confirm the key reason you are looking to switch things up on your home loan.
- Understand the costs: there are some costs involved in refinancing, but they’re often less than the potential savings so don’t be shy to move past this step.
- Meet with a broker (AKA a home loan expert): oh, hey there! Enlisting the help of an exert is a great first step. And it’s free with no obligations. What have you got to lose?
- Prepare your docs: lenders will require some documents to validate your current financial situation. It’s inevitable, but made easier online with Finspo.
- Explore your options: The fun bit. An expert will play back to you a bunch of personalised lending recommendations for you to choose from. Yep, an expert just did a whole lot of research into over 30 lenders and 1,000’s products to find you THE ONE.
- Apply for your home loan: next comes the formal part in lodging an application with your chosen lender.
- Property valuation: your lender will often want an updated valuation of your property to make sure of its value.
- Loan approval: success! Your lender has approved your home loan which means you are getting very close now.
- Settlement: it’s official, you are now the proud owner of a brand new sparkly mortgage with all those bells and whistles (and hopefully a cracking good interest rate) — booyah!
So as you can see, there are a few steps involved to refinance a mortgage. This is where we come in.
At Finspo, we know it pays to have an expert in your corner to make this process as easy as possible and we make it our business to take the hassle out of refinancing with 3 simple steps:
1. Book a time to chat with a Finspo Expert
2. Tell us about yourself and provide the necessary docs
3. Consider our recommendation and choose your approach
From there, we’ll take over and do the heavy lifting with the paperwork and deal directly with the lender on your behalf. That’s right, you don’t even have to talk to the lender if you don’t want to!
Why don’t more people refinance?
Sounds too good to be true? Below we have summarised a number of the common reasons people still avoid refinancing and how we may still be able to help.
| What we often hear… | How Finspo can help… |
| Switching fees are going to sting! | On average, switching fees add up to less than $1,000. Once you factor in potential interest savings through a lower rate our customers can often still save quite a bit in the first year alone (let alone the next 20+ years you may have left on your home loan) |
| There is just too much paperwork | You will need to provide supporting documentation and sign a few documents along the way. But we will do a lot of the heavy lifting here for you with some great digital tools. |
| I need a fast approval | We work with lenders to get you approved as fast as possible. Sometimes within 48 hours of submitting a complete application. |
| Whole process takes too long | With all the documents provided, our experts will help you start saving fast. Sometimes a refinance can turn around in under 30 days. |
| Rates are too high, I won’t get approved | We hear you! Rates have probably increased since you last got your loan. This can make it difficult for some borrowers to get approved with a new lender. But it’s worth checking with an expert to see how your borrowing position stacks up. |
| Providing financial data is a pain | Great news! We can automatically fetch most of your banking data and statements and will even work directly with your accountant if you are self-employed. |
| I don’t want the lender looking through all my expenses | Finspo experts are knowledgeable and can give you a guide on your borrowing power before you start, or what you need to do before applying to get things on track. |
| Talking with the bank…ugh | We get it! Finspo has trained experts who deal with the lenders all day long, so you don’t have to! |
| I don’t even know where to start | That’s normal. Our friendly Finspo experts are in your corner to help you understand all your options and make things clear and easy for you. No judgement here! |
And when is a good time to refinance?
Whenever you can save a dollar is a good place to start. Refinancing is often a great option for borrowers to access some better deals in market. Lenders love a lazy borrower who stays with them for years paying off their loan without ever challenging them to get a better deal.
The most common reasons people refinance their home loan:
1. To get a lower interest rate
It’s not much of a secret that banks often charge their existing loyal customers much more than their new ones. In fact, the ACCC recently found that the longer you have your loan with your current lender, the more you pay.
2. To access a cashback offer
Did you know that many of the popular banks will offer you up to $3,000^ just to switch your home loan to them? Woah! That is on top of any savings you are likely to make by also getting a lower interest rate. Of course, it is important to also recognise there may be costs associated with switching but often these are outweighed by the potential savings you could achieve.
3. To access equity (or cash) to pay for something important like a renovation
Equity is the difference between the value of your house and the size of the loan you have for that house. If you have been paying off your home loan for some time, chances are you will have quite a bit of equity available. And this could be even more than you think if your house has also increased in value.
For example, say you took out a loan 5 years ago of $600,000. At the time, the house you bought was worth $800,000. You have paid $50,000 off the principal through your regular repayments and the house value has increased by 20% in that time.
Your house is now worth $960,000 and you owe $450,000 meaning you have $410,000 equity in your home. By refinancing your loan, you could access some of this money to pay for that renovation you have always dreamed of.
4. To reduce your repayments
A common reason customers look to refinance is to reduce their repayments, often by extending their loan term back to 30 years. What this does is essentially stretch your mortgage out over a longer period of time, which in turn may help you reduce your repayments.
Too good to be true? Yep, often it is. It’s important to note that if you extend the lift of your loan, you may end up paying more interest over the life of the loan. A good broker can help you estimate the impact of extending your loan term, or check out our refinance calculator which will make it clear in under 30 seconds.
5. Personal circumstances have changed
Often a life change event can be a good time to review your finances (and yes, a new tiny human falls into that category). This is because a change in your spending habits (ahem, more nappies) or earning capacity can mean your current loan and repayments are no longer the right fit. Remember, your home loan should always evolve with your lifestyle.
How much could you save by refinancing?
Well let’s say you had a loan of $500,000 with an interest rate of 6.65% p.a.
If you switched to a loan with an interest rate of 6.15% p.a. (a saving of 0.50% p.a. which happens to be roughly the average difference between the average interest rate for new vs existing loans in Australia) you could save nearly $2,000 in interest the first 12 months.
Let’s say you are also eligible for a $3,000 cash back offer and have to pay $1,000 in fees to switch your loan, we are now talking a potential $4,000 in savings in the first 12 months.
If you would like to get an understanding of how much you could save, check out Finspo’s refinance savings tool which will help you understand how much you could save by refinancing your loan.
So, what are you waiting for? Get started now – all online.
Finspo ABN 34 637 821 928 Australian Credit Licence 521120.
Things you need to know: This information is general only and is not intended to include any recommendation or suggestion about any particular credit product. It does not take into account your financial situation, requirements, and objectives. Please consider whether this information is right for you before making any decisions and seek professional tax or financial advice.
