Refinancing your home loan? Here's 6 steps to help you prepare

Refinancing your home loan could help you lock in a lower interest rate, more flexible loan features or a more suitable loan structure. And with interest rates at all-time lows, there are more opportunities than ever to lock in a better deal.

Australians are clearly taking notice - a record high of approximately 500,000 people refinanced in 2020, according to the Australian Banking Association¹

If you're thinking about joining the half million Aussies who changed their home loan, check out these six steps to make sure you're fully prepared.

1. Reaffirm your reason for refinancing

Before you start the process of applying, it's worth taking some time to think about exactly why you want to refinance. Some common reasons include:

• Securing a lower interest rate.
• Adding useful features such as a redraw facility or offset account.
• Changing your loan's term.
• Switching to a fixed interest rate, or to a variable rate.
• Releasing equity to free up cash.
• Consolidating debts.

Whatever your reason is, you should be certain that you can afford to make the new repayments and that you will benefit from the new loan. If you're unsure, it can be a good idea to speak to a financial advisor for help with the decision.

2. Know the cost

Make sure you know how much it will cost you before you commit.

Your current lender may charge you fees to cover the costs incurred when you end your mortgage such as:

• Discharge fees to cover your old lender's administration costs as they end your mortgage.
• Break costs if you're breaking a fixed interest rate term.
• Exit fees if you took your loan out before 1 July 2011 (exit fees are banned from being applied to loans issued after that date).

Your new lender may also charge a range of fees to arrange your new mortgage, which could include:

• Application fees.
• Property valuation fees.
• Settlement fees.
• Mortgage registration fees (charged by the state government).

Refinancing your mortgage costs on average $750, but could be closer to $2,000, according to Canstar².

3. Make sure it makes sense

Before you commit to refinancing, take the time to make sure the change will save you money (if that's your goal) and that you can afford repayments on your new mortgage.

The Qudos Bank loan repayment calculator can be a useful tool to compare both mortgages and calculate the difference in total repayments and interest payments per year.* Then, add refinancing costs to find out whether you're better off.

Most importantly, take a close look at your budget to make sure you can afford the repayments on your new mortgage.

4. Consider your finances

When lenders assess your application, you'll likely be in a better position if you have low levels of debt, sensible spending habits and savings.

Check out our 5-step plan to take control of your debt.

If you struggle to save, it may be a good idea to take a look at your budget and see whether you there are areas of spending you can reduce to help you save more.

5. Get your paperwork ready

As with applying for your original mortgage, you'll likely need a number of documents to apply to refinance your home loan, including:

Proof of income

• Your three most recent payslips (if you're an employee).
• The last two years of personal and business tax returns and business financials, plus an ATO notice of assessment (if you're self employed).
• Rental statements (if you own an investment property).
• Centrelink statements (if you are receiving the pension).

Validation of financial position

• Rates notices for any properties owned.
• Account statements and three months of transactions for any savings accounts.
• Three months' account statements for credit cards, loans and transaction accounts.

For construction loans, you'll also likely need a builder's contract and plans; while for new builds, you'll also likely need a contract of sale.

6. Apply for your new home loan

Once you've got all your paperwork ready, it's time to apply for a new home loan with your chosen lender. Take a look at our guide to the home loan application process to help you understand what's involved in our home loan application process.

It's can be beneficial to contact your lender and drop in to a branch to go over your options first, but in most cases you may be able to start the application process online.

Ready to refinance?

Refinancing can help you pay less interest, free up money in your budget or help you shorten the term of your home loan. Whatever your reason for refinancing, it's important that you take the time to ensure the change will benefit you.

If you'd like to understand the options available to you, get in touch with the team at Qudos Bank for guidance on choosing the most suitable new home loan for your needs.