While mortgage rates remain at near all-time lows, many homeowners are wondering if now is the right time to refinance their home loan. Refinancing your home loan can save you thousands of dollars in interest over the life of your loan, but it's important to do your homework and compare offers from multiple lenders before deciding if refinancing is right for you. Here are a few tips to help you prepare to refinance your home loan and get the best rates.
Get really clear on your goal
All successful decisions start with a clear goal or desired outcome, and this remains true when refinancing. So, take some time to think through what outcome or situation you'd like to be in once your refinance has settled. Some goals might include:
- Do you need extra cash for a renovation?
- Are you looking to reduce your monthly repayments?
- Do you need new features on your loan, such as an offset or redraw facility?
- The list could go on...
There is a world of options when it comes to refinancing loans, so once know exactly why you want to refinance and what you hope to achieve, share your goal with your mortgage broker and they will help you make the best decision to achieve your goal.
Checking your credit score
When preparing to apply for a home loan refinance, it is important to check your credit score as this will determine the interest rate that you receive. Your credit score tells lenders how reliable you are at paying back loans and other debt. A higher credit score indicates that you are more likely to pay back the loan on time, so lenders provide better rates for borrowers with high scores.
Checking your credit score before applying for a refinance can help ensure that you get the best possible interest rate and save money in the long run.
These steps now can help set you up for success when it comes time to refinance your home loan. By following these steps, you can be sure that you’ll get the best rates possible and save money in the long run.
1. Pay bills on time
One of the most important ways to improve your credit score is by making sure all bills and payments are made on time each month. Late payments will lower your score, so make sure to stay organised with your bill due dates and payment deadlines.
2. Reduce existing debt
Another factor considered when calculating your credit score is how much-existing debt you have compared to available credit limits. Reducing existing debt or increasing available lines of credit will help improve this ratio, boosting your overall score in turn.
3. Check accuracy
Always review monthly statements from creditors closely as errors may occur which could negatively affect your score if not corrected promptly. Additionally, check that all information reported by creditors matches what’s in your records; any discrepancies should be addressed quickly with both parties involved to avoid any potential damage to your score.
4. Keep credit utilisation low
The amount of debt owed to creditors compared to total available credit is commonly referred to as the “credit utilisation” rate, and having a low rate can improve your score significantly. To keep this ratio low, try not to use more than 25% of your available credit at any given time.
5. Be mindful of applications
Every time you apply for credit, lenders will pull your credit score to check for eligibility which can cause a temporary dip in rating. Try to limit the number of times this occurs and only apply when necessary.
Gather all necessary supporting documents
When preparing to refinance your home loan, it is important to gather all the necessary supporting documents to have a smooth, fast, and successful application process, especially if you're looking to refinance with a new lender. Some key documents you should have ready are:
Identification
- Drivers Licence
Make sure you have copies of both the front and back of your licence - Passport
Make copies of the photo page of your passport. If you have Permanent Resident status, make sure you provide a copy of your visa - Medicare Card
This card is especially important if you have children under 18 years of age
Proof of income
- Payslips
Your three most recent payslips (if you're PAYG)
- Tax Returns
Have your notice of assessment for the two most recent financial years
- Company Income Tax Return
If you're self-employed, make sure you have your tax returns for the two most recent financial years. If you can provide your broker with your company Year-End Report, your accountant can provide you with this report. This report can provide your broker with a holistic view of your financial situation and maximise your borrowing capacity.
Financial Statements
- Bank Statements
Lenders want a clear view of their spending and saving habits, especially with interest rates rising 3.25% over the past twelve months. So, providing your last three months of bank account statements is quite normal, this includes your credit card statements. However, most brokers and lenders will have secure technology solutions to make this process fast and easy.
Property Details
- Rates Notice
When refinancing you'll likely need to provide your most recent rate notice, the local council or state government will send you this document either quarterly or annually. If you're refinancing an investment property, check with your property manager, as many investors sign authorisation forms for their property manager to receive rates notices.
- Rental Agreement
If you're refinancing your investment property, many lenders will require a copy of your rental (tenancy) agreement, to verify the income you're receiving from your investment.
Be guided by your mortgage broker for any other supporting documents you might need. However, having the above documents ready ahead of time can make the entire process go more smoothly and give you a better chance of obtaining a great refinancing deal with low rates.
Shop around for the best home loan interest rates
Don't just go with the first lender you come across. Take the time to shop around and compare rates from multiple lenders to find the best deal.
When it comes to refinancing your home loan, shopping around for the best interest rates is essential. A mortgage broker can help your compare rates among multiple lenders which can have a major impact on the total cost of borrowing, saving you money in the long run. Every basis point difference in interest rate can add up to significant savings over the life of your loan, so it pays to shop around and compare the best rates available.
Be sure to also look up reviews and ask questions of your mortgage broker about the proposed lenders before making your decision. Doing research can help you find reputable lenders that offer competitive rates and who have excellent customer service. Additionally, always read the fine print before signing any loan agreement to make sure you understand all terms and conditions and any costs that might relate to your home loan product.
Understand the costs
When refinancing your home loan, it is absolutely essential to understand the costs associated with this process. Before taking out a new loan, it is important to get a clear view of all the fees that come along with it, such as application fees, valuation costs, and disbursement costs. All of these can add up quickly and should be factored into your budget when refinancing. Knowing all of these costs upfront allows you to better assess your financial options and determine what is best for you in the long run. Your mortgage broker can help you get a handle on any hidden costs associated with a home loan and can ensure that you are not stuck with an expensive loan that doesn’t fit your needs or budget.
Calculate the breakeven point
When considering refinancing a home loan in Australia, it is essential to calculate the breakeven point to make sure that the costs associated are worth it. By determining this point, one can determine how long it will take to break even on the costs of refinancing and make sure that they are making a wise financial choice.Additionally, understanding the breakeven point allows individuals to better assess their financial options and determine what is best for them in the long run. Knowing when you will have recouped any initial costs associated with refinancing gives you a better idea of whether or not the decision you made was an economical one. Calculating the breakeven point when refinancing your home loan is essential for anyone hoping to get the best deal possible when making such an important financial decision.
Check the terms of your current loan
Before you refinance, check the terms of your current loan to see if there are any prepayment penalties or other restrictions that could affect your decision.
Consider the length of the loan
When refinancing, you have the option to choose a loan with a different term length. Consider whether a shorter or longer term makes more sense for your financial situation.
Seek professional advice
If you're not sure whether refinancing is the right move for you, or you're simply short on time, consider seeking the advice of a financial advisor or a mortgage broker. They can help you weigh the pros and cons and make an informed decision.
Be sure to ask questions and get all the information you need before making a final decision. Refinancing your home loan can be complicated, so it is important to do your research and understand all of the potential benefits and risks. With the right preparation and knowledge, refinancing can be an excellent way to save money in the long run
If you're looking to start preparing to refinance your home loan, especially if you're rolling off your fixed-rate loan, we'd love to help you achieve your goals. Click here to book a discovery call with one of our brokers or call us on 1300 799 702, we'd be happy to learn more about what you're looking to achieve.
