What is refinancing?

Make managing your debts easier by refinancing!Refinancing is where you can roll multiple debts into an existing debt obligation on different terms. This makes managing your finances significantly easier. Many home owners typically choose to refinance a home mortgage if their lifestyle or needs change. Refinancing has many benefits!

A loan can be refinanced for various reasons:

  • To take advantage of a better interest rate.
  • To change the rate from variable to fixed.
  • To consolidate other debts into the one loan.
  • To reduce the monthly repayment amount.
  • To free up cash.

Switching lenders

Many people choose to switch lenders upon refinancing because it is unlikely that their current lender is still offering the most competitive rates. However it is important to check the credit rules, as some lenders may not approve low doc loans. These are predominately lenders insured by QBE LMI, however other lenders have unofficial policies or credit scoring restrictions on low doc refinances.

The policies vary significantly between lenders, some will only refinance low doc loans from a major bank or second tier lender. Whilst others will not refinance at all. A few select lenders will make exceptions for construction loans.

It is also important to note that exit fees may apply when terminating your current loan.

Refinancing process

The steps involved in refinancing a home loan, are similar to those that are involved when initially securing for a home loan:

  • Apply.
  • Obtain a valuation.
  • Lender will approve your loan.
  • A loan offer is sent out for you to sign.
  • Your new lender will arrange with your existing lender to meet, repay their loan and remove their mortgage on the property.

As your mortgage broker we will take care of most of this process for you.

How much does it cost?

There are usually a variety of costs associated with refinancing, these include:

  • Application fees which may involve the cost of one valuation fees. Some lenders may waive this fee.
  • A ‘deferred establishment fee’ (DEF), which is a penalty for paying out the loan early. Generally this only applies if you repay the loan within the first three to five years.
    The amount varies between lenders, however it is generally $700-$1500 for prime lenders and up to 3% of the loan amount for non-conforming lenders.
  • Discharge fee – usually it is an estimated $300.
  • Registration fees depending on state locality. Usually they do not exceed $200.

Some lenders have ‘no cost’ refinancing but may charge a higher interest rate (negotiate waiver of some fees).

How much can I borrow?

Low doc loans over 80% of the property value are rarely available. If they are available they’re usually very expensive, with most loans at 3 to 4% above the banks standard variable rate.

How do lenders view refinancing?

From past experience lenders know that refinance applications are a higher risk than purchasing applications. They often ask ‘did their current lender turn them away?’ and ‘what does the current lender know that we don’t?’

In particular, releasing equity is seen as high risk. This is because your new lender won’t have certainty as to what the cash will be used for. Such a risk is also high when people are consolidating debt.

Many people, who do so, end up taking out more unsecured loans and credit cards shortly after their refinance goes through – they begin living above their means.

Consequently, many lenders have policies that restrict or impose conditions on refinancing, making it difficult to get approval.

How can we help?

Despite the difficulties getting approval, we are specialists in refinancing and can help you get the best rates possible. Contact us today to find out how!