Refinancing your Australian home loan can be a daunting task, but it can also be a smart move that saves you thousands of dollars over the life of your loan. However, refinancing like a pro requires knowledge, preparation, and a clear understanding of the process. In this blog post, we will share our top 10 insider tips to help you navigate the refinancing process and get the best deal possible.

1.    Know Your Current Home Loan

The first step in refinancing like a pro is to understand your existing loan. You need to know the terms and conditions of your current loan, including any penalties for early repayment. You should also check your current interest rate and fees to compare them with the rates offered by other lenders.

This allows you to calculate your breakeven rate when you’re considering refinancing, which is outlined in the below formula:

Breakeven Rate = Current Interest Rate – (Costs of Refinancing / Current Loan Balance)

The costs of refinancing include discharge fees, registration of the new mortgage, couriers involved to execute the new loan documents, identification witnessing costs, any other bank fees for the discharge or settlement of the new loan, and any conveyancer fees if they’re required for the refinance. You should also consider if there are any other Exit Fees or break costs for refinancing, which is more typical when the loan is currently on a fixed interest rate.

Case study: John had been paying his home loan for five years when he realised that his interest rate was much higher than the rates offered by other lenders. He checked his loan terms and found out that he had a high exit fee if he decided to refinance before the end of the loan term. He decided to wait until the exit fee was lower before refinancing.

2.    Shop Around for Better Rates

One of the biggest mistakes people make when refinancing is not shopping around for the best rates. You should compare interest rates from different lenders and research their reputation and customer service. You should also look for hidden fees and charges, such as application fees, valuation fees, and settlement fees.

Case study: Sarah found out that her current lender was charging her a high application fee for refinancing. She shopped around and found a lender that offered a lower interest rate and no application fee. She saved thousands of dollars over the life of her loan.

3.    Improve Your Credit Score

Your credit score plays a crucial role in your ability to refinance your home loan. Lenders will check your credit score to assess your creditworthiness and the risk of lending to you. You should obtain a copy of your credit report and review it for errors. You should also take steps to improve your credit score, such as paying your bills on time, reducing your credit card balances, and avoiding new credit applications. This allows many to access better interest rates and a wider selection of new lenders to choose from.

Case study: Tom had a low credit score due to a default on his credit card. He paid off the default and started paying his bills on time. He checked his credit report and found that his credit score had improved. He was able to refinance his home loan at a lower interest rate.

4.    Increase Your Equity

Equity is the difference between the value of your property and the amount you owe on your home loan. The more equity you have, the more options you have when refinancing. You can increase your equity by making extra repayments on your existing loan or by finding ways to increase the value of your property, such as renovating or landscaping.

Some lenders will allow Australian expats to go up to an 80% Loan to Value Ratio (LVR), while others will cap this at 60%, so by having a property with a lower LVR (or greater equity), will increase your lender options when considering refinancing.

Case study: Lisa had been paying her home loan for ten years and had built up a significant amount of equity in her property. She used her equity to refinance her home loan and invest in a rental property. She now has two properties and is earning rental income.

5.    Consider Fixed vs. Variable Interest Rates

When refinancing your home loan, you will need to decide between a fixed or variable interest rate. A fixed interest rate means that your interest rate will stay the same for a fixed period, usually one to five years. A variable interest rate means that your interest rate can change at any time. You should consider the pros and cons of each option and choose the one that is best for your financial situation.

Case study: Jack decided to choose a fixed interest rate when refinancing his home loan. He wanted the security of knowing that his repayments would stay the same for the next five years.

6.    Consider Your Loan Term

Another important factor to consider when refinancing is the length of your loan term. A longer loan term will result in lower repayments, but you will end up paying more in interest over the life of the loan. A shorter loan term will result in higher repayments, but you will pay less in interest. You should consider your financial goals and choose a loan term that suits your needs.

Case study: Emily had been paying her home loan for ten years and wanted to refinance to a shorter loan term. She found a lender that offered a competitive interest rate and a loan term of 15 years. Although her repayments were higher, she would save thousands of dollars in interest over the life of the loan.

7.    Consider Using a Mortgage Broker

A mortgage broker can help you find the right home loan for your financial situation. They have access to a wide range of lenders and can negotiate on your behalf. They can also help you with the paperwork and guide you through the refinancing process. This is particularly valuable for Australian expats where there are many lenders that will offer unfavourable terms, or may not be willing to lend to Australian expats at all, even if you already have a loan with them.

Case study: Michael used a mortgage broker to refinance his home loan. The broker found a lender that offered a lower interest rate and helped him with the paperwork. Michael saved time and money and was happy with the service provided by the broker.

8.    Be Prepared for the Application Process

The application process for refinancing can be lengthy and complex. You will need to provide documentation, such as payslips, bank statements, and tax returns. You will also need to undergo a valuation of your property. You should be prepared for the process and have all the necessary documents ready. Your mortgage broker can assist in outlining all of the required documents and liaise directly with the lender on your behalf.

Case study: Lucy applied to refinance her home loan but was not prepared for the application process. She had to spend a few weeks gathering the necessary documents, which delayed the process. She learned her lesson and made sure to be prepared for future applications.

9.    Don't Cancel Your Current Loan Too Soon

When refinancing, you should be careful not to cancel your current loan too soon. You should wait until your new loan has been approved and settled before cancelling your existing loan. This will ensure that you are not without a loan and can avoid any penalties for early repayment.

Case study: James cancelled his current loan before his new loan had been approved and settled. He was without a loan for several weeks and had to pay a penalty for early repayment. He learned his lesson and made sure to wait until his new loan had been settled before cancelling his existing loan.

10. Review Your Loan Regularly

Once you have refinanced your home loan, you should review it regularly to ensure that it is still the best option for your financial situation. You should check your interest rate and fees and compare them with other lenders. You should also consider any changes in your financial situation, such as a change in income or expenses.

Case study: Michelle reviewed her home loan regularly and found that her interest rate had increased. She shopped around and found a lender that offered a lower interest rate and fees. She refinanced her home loan and saved thousands of dollars over the life of the loan.

Conclusion

Refinancing your Australian home loan can be a smart move that saves you money over the life of your loan. However, it requires knowledge, preparation, and a clear understanding of the process. By following our top 10 insider tips, you can navigate the refinancing process like a pro and get the best deal possible.

Remember to shop around for better rates, improve your credit score, increase your equity, consider fixed vs. variable interest rates, consider your loan term, consider using a mortgage broker, be prepared for the application process, don't cancel your current loan too soon , and review your loan regularly. By doing so, you can save money, reduce your monthly repayments, and achieve your financial goals faster.

In summary, here are the top 10 insider tips to refinancing your Australian home loan like a pro:

1.     Shop around for better rates

2.     Improve your credit score

3.     Increase your equity

4.     Consider fixed vs. variable interest rates

5.     Use a mortgage calculator

6.     Consider your loan term

7.     Consider using a mortgage broker

8.     Be prepared for the application process

9.     Don't cancel your current loan too soon

10. Review your loan regularly

We hope that these tips will help you make the most of your home loan refinancing and achieve your financial goals. Remember, refinancing is a complex process, and it's essential to do your research and seek professional advice if you're unsure about anything.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business, and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.