• What it means to refinance your mortgage


    Author: Bankwest (sponsored content)

    If your mortgage isn’t giving you what you need, don’t feel bad about changing it. Regularly reviewing your mortgage to make sure it works for you is just part of being smart with your finances. So, are you considering switching but unsure what refinancing is?

    What does refinancing mean?

    In a nutshell, refinancing means moving your home loan from one lender to another.

    Essentially, when you refinance to another lender, it’s considered a whole new loan to them. Because you’re not buying a new home, the process doesn’t involve another vendor or settlement agent, although you do still need to get the property valued.

    Before you decide to refinance, it’s worth looking at what your current lender is now offering because there might be a new home loan with more flexible features or add-ons that can help you meet your goals.

    Take a look at some reasons to refinance.

    How do you refinance your home loan?

    Often, the first step is to talk to a lending specialist. They can outline what’s involved in moving your home loan to the new bank, guide you through the steps in more detail and be on call when you need them.

    If you decide to refinance you’ll need to apply for a new home loan with the lender you’ve chosen. A valuation of your property will be carried out and you’ll usually need to give them statements on your current home loan, as well as a payout figure. This is the amount remaining on the loan that will be paid out to your current lender.

    You’ll also need to organise a discharge with your original lender (this is when the bank's name is removed from your property title). This can take a few weeks so should be arranged early. A settlement date will then be agreed between the two lenders to transfer the mortgage title.

    Find out what you need to apply for a home loan.

    Is there any reason I can’t refinance?

    There are a few factors that could mean you won’t be able to refinance your home loan.

    If you don’t have a low enough loan to value ratio (LVR) there could be insufficient security against the new loan and a lender might not approve it. This would happen if the property value has decreased or a new valuation assigns it at a lower value. In this case, it’s worth talking to your lender to find out what your options might be.

    You may also be outside the new bank’s lending policy, or you may not meet the bank’s credit assessment criteria.

    The costs of refinancing

    Discharge costs

    Banks will usually charge a fee for you to discharge your mortgage. The cost varies from bank to bank and usually takes a few weeks to be processed.

    Lenders Mortgage Insurance (LMI)

    When you refinance your mortgage and your new bank is lending you over 80% of your property's value, you may need to pay LMI.

    Breaking a fixed rate loan

    If you're currently on a fixed rate loan at your bank, you may incur a charge to break that term early. The cost depends on how long is left to run on your fixed term and what your fixed interest rate is. Your current bank will be able to provide an estimated break cost.

    The information contained in this publication is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this publication without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL/Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this publication.