10 Steps To Fast And Successful Refinancing

Have you been in your property for a year or two now? Do you want to ensure your home loan interest rate and offer is still competitive?

You are not alone! Let‘s face it, everyone wants a better interest rate and savings in their pocket. In Australia, about $16.2 billion in home loan refinances occur each month, according to the ABS.

Refinancing a home loan can potentially put homeowners in a significantly better financial situation. But, what are the steps to take to ensure you are well placed to refinance successfully?

In the following article, we’ll examine the 10 steps you should take to make your refinancing journey a successful one.

So, if you’re an Australian looking to level up from your current mortgage... Let’s have a look at what’s involved to streamline the refinancing process to get a cracking home loan.

1. Review Your Current Home Loan

Getting your hands on the latest current home loan statement is the best place to start. In the YouBroker platform, we do this for you via our open banking service. It pulls in the latest information about the loan, including the balance and inserts this into your profile. This saves you the time and hassle of doing it yourself.

On the statement, you will be able to see:

• The latest balance.
• Important information about your home loan. For example, the loan term remaining. Do you have 23 years left on your loan? or was it 28? Have a sense for what term is remaining, as ideally, you want to fully pay off your own home before you retire.
• Your repayments and potentially your headline interest rate too.

If you are looking to take the overwhelm out of the refinancing process, YouBroker‘s system will assist. It will populate the application with the statement data, saving you time and increasing the accuracy of the process.

2. Understand Your Key Goal

Your life never stands still, and neither should your mortgage. If you are planning changes regarding your property or your finances, it might be time to search for a more suitable home loan. Some reasons for refinancing include:

• You want to get a lower interest rate, as the lender has become uncompetitive.
• Debt consolidation of financial commitments such as car loans, or personal loans, into a more manageable home loan rate and structure.
• To grow your property portfolio by taking cash out from your home to place a deposit on an investment property.
• Like the above, you may be an investor and want to refinance certain properties in your portfolio to maximise deductions and the gearing vs equity position.
• You may also be looking out for certain features such as offset accounts, or interest-only lending if you are an investor.

At the completion of the refinancing process, ideally, you are aiming for an improvement in your financial situation.

3. Understand The Home Loan Choices Available

As a savvy borrower, you know that checking out a few home loan product options is wise. It’s about choice. It’s why Amazon is so popular, right!?

We know that if your home loan doesn’t suit your lifestyle or personal situation, it can cost you. Those ongoing fees and that extra interest could be wasting thousands of your dollars a year.

So, ditch going to the bank, and instead, search and filter for a new mortgage that suits you.

You can do this by looking through the YouBroker Loan Search, which you can access by setting up your YouBroker profile.

This search will allow you to see:

• Home loan options with a low-interest rate (just sort by rate).
• Home loan options that are interest-only or suitable for investments.
• Home loans filtered to show offset account features, or other loan features and packages.
• What home loan discounts are available (not only at major banks, but other lenders like Macquarie, ING Bank, and UBank).
• Basic home loan products, which often have redraw facilities and low or no fees.
• Rates by LVR (loan to value ratio) because sometimes a higher LVR means a higher interest rate.

Overall, you want to get a sense of different lenders and what options you can qualify for.

We help our customers compare each suitable provider, compare lender rates, lender fees, and confirm a recommendation based on these factors.

Alongside these options, our Rates Search allows you to see the loan repayments in $ dollar terms, so you get a sense of the monthly repayment.

4. Consider If You Want To Change The Structure Of Your Home Loan

Getting a new home loan or a mortgage with another bank or lender can be a smart move to help cut your costs. But before you proceed with refinancing, it‘s a good idea to think about the structure of the loan.

Here are some things to consider:

• Stretching out or resetting the term to 30 years may result in lower monthly repayments, but may end up costing more long term.
• You may want to structure your loan on the same pay-off curve (also known as loan amortisation), so that your term stays similar to what it is currently, say 20 or 25 years left to go.
• You may also want to change to a new lender for an attractive fixed rate, which can be a good bet against any rising interest rates to give you more financial security.

Renovating or Investing? The 80% Cash Out Rule May Be Right For You.

If you have home equity, the best time to get cash out is now as you undergo the refinancing process.

Property prices can fluctuate and emergencies can occur. You may also see a property come up for sale that you would like to jump on. So when you refinance, you might consider gearing your property to the 80% LVR (Loan to Value Ratio) mark and have this cash out at the ready for such an opportunity.

Since it’s on the sidelines, you can use the money for a renovation, a vehicle, business funds, or another worthwhile use.

If you keep the surplus cash in your offset or redraw account, you will not be charged interest, and the cash is there for you to use when appropriate.

Investing? You May Want To Do The 2+1 Plan

Many Australians invest in property as a steady asset to hold for the long term. Property in Australia can earn an average of 9% growth per annum and 3.5%-5% in cash flow depending on the quality of the property and how in-demand the suburb is.

Is that your reason for refinancing? Then you may want to think about the 2+1 plan.

This is how it works:

1. Draw equity from your main home. Refinance your property and gain cash out and an investment property pre-approval.
2. Invest in a second property and a third, so you have 3 overall. Make sure they are in good locations. Buy a well-located rental property. Hold over the long term (usually 10 plus years). Doing renovations on the homes may accelerate the equity potential.
3. Then sell #2 or #3 property and pay down your own home.
4. The time frame is about 8-12 years. But, it is doable and many Australians have created serious financial security and wealth this way.

5. Check That You Qualify Through Pre-Assessment Checks

Before they give you a loan, banks and lenders need to make sure that lending to you is a responsible move.

As an accredited and licensed mortgage broker, we pre-check your financial vitals against the lender policy, rules, and guidelines.

For example:

• You may want $200,000 cash out for an investment or business and certain banks may not want to do that.
• You may want a higher loan amount, but it’s important we check your borrowing power to confirm you will be approved.
• You may have moved to be a contractor or ABN holder, affecting which banks and lenders will approve your application.
• As an investor, your property may have received a low valuation at one lender, and we need to get access to equity via a new valuation from an alternative bank or lender.

In basic terms, the bank will be looking for your ability to service the loan based on your total income and expenses position. They will also want to confirm there is adequate equity in the property, via a valuation.

At YouBroker, once you have completed a profile, we are able to run qualification checks on multiple bank lending criteria options for you. We do this without affecting your credit rating.

This gives you greater security and confidence that the lender is the right choice in both value and approval terms.

6. Make Sure You Have The Key Documents Ready For The Application

Providing documents is still required within the new loan application process. So that you can be organised, lenders and banks typically need the following information:

• Details of your ID (which we auto collect on the YouBroker platform).
  The latest 6 months of bank statements and credit card statements (which we auto collect on the YouBroker platform).
• Credit Check on you as a borrower (we do this on the YouBroker platform, without affecting your credit score or rating).
• Details of your personal situation such as address (which we gather on the YouBroker platform).
• Your latest 2 payslips.
• Details of any commission, or bonus income over the last 2 years (evidenced on final payslips or individual tax returns).

As you can see, YouBroker has engineered the website application to collect these easily as part of the onboarding process.

7. Choose an accelerate paydown strategy

One of the benefits of refinancing your home loan is that it can improve your overall net worth, budget surplus, and financial wellbeing.

So it’s natural you may want to smash down your home loan with lots of extra repayments. Some common “extra repayment” targets are the following:

The Fortnightly Plan

Pay down your minimum monthly payments on a fortnightly basis instead of at the end of the month.

This works through dividing your monthly payments by 2 and then paying them every fortnight, ideally in advance. This reduces the time to pay off the average 25 years mortgage by 6 years.

The savings here are coming from the more frequent payments that are reducing the interest. Also, you are making extra payments since there are more than 28 days (2 fortnights) in a month.

The +10 Plan

Regardless of the frequency of your payments, you can pay an extra 10% for every payment you make. This is not a big change and is well within reach without greatly affecting your disposable income.

This strategy leads to even more savings than the Fortnightly Plan, on average reducing your mortgage by approximately 7 years. As with the Fortnightly Plan you need to make sure your mortgage provider accepts extra payments which is usually the case with variable, redraw-based, or offset account loans.

Note: some lenders also have fixed loans with offset accounts (we can help you with these) or with multiple offset accounts on the one loan.

8. Comparing Apples with Apples

Making smart comparisons is about looking beyond ‘cheap’ headline rates at the true total cost over both the long term and the short term.

When we see loan options over time, we can see the total effect of any short-term settings such as fixed rates and interest-only periods. This is called the Total Cost of Ownership.

We also see the effect of fees, as they can make a solution that looks cheap much more expensive.

Is it worth going with a promotional rate if you can refinance in 24 months?

A home loan is certainly a commitment, but you can refinance safely after 24 months. We can help with that and ensure your finances remain in great shape.

Consider, what is your next step in managing your wealth and lifestyle? Are there any investments, renovations, or maternity plans in the next 24 months that we can prepare for now in this refinance?

9. Go Back to Basics

Basic variable accounts are usually the cheapest rates. And you can use the redraw to save even more. These basic variable home loan products are often best for those who don't need the preservation of any investment or tax gearing benefits.

Many major banks and alternative lenders have these options, including NAB, ING Bank, Newcastle Permanent, and Suncorp.

Basic Variable Accounts are cheap, have no-frills, and are convenient.

Key things to note:

• The redraw feature is available on variable rate loans as opposed to fixed loans (usually).
• Redraw can be found on basic variable loans, this is different from an offset, as the redraw funds sit within the loan itself.
• Sometimes there is no branch access (or it comes at a charge). So, Internet Banking is best to manage the loan and redraw (as opposed to phone banking, or branch banking). Usually, this is not a worry, as online or mobile banking is very common these days.
• Redraw funds can often be accessed by a debit card, for easy transacting. You can even get your salary credited to the account in many cases.

10. Consider A Great Online Home Loan Platform

As a savvy customer, you know that the interwebs are the first place to check out what the latest and greatest is - from pet food, to fashion, to new TV shows... And to home loans, of course!

Yes, there are generic comparison sites out there, but they are pretty generalised. And here’s the thing... They just sell off your data and you end up with a bunch of weird phone calls and no concrete answers or approval.

That‘s why YouBroker exists. Australians have some of the biggest home loans in the world. At YouBroker, we saw the need for a great way to find what’s hot, what you qualify for, and to get approved, all on an easy-to-use online platform.

Having a YouBroker profile allows you to:

• Get underway with shortlisting and comparing the best loans.
• Building out checks and a full profile, which you can save for this loan, plus the next refinance.
• Understanding your borrowing power, and qualification.
• Access to expert broker support as you go through the process.
• Getting approved and settled as fast as possible.

We’ll help you to navigate the refinancing process so you can take charge of your financial situation.

We offer a full online service so you can start the process on the go, from the convenience of your own home, or at the office.

You’ll get access to our secure online portal to keep you up to date with progress and info. Also, we are qualified and fully accredited with an Australian Credit Licence through ASIC, so you know you’re in good hands.

So if you’re looking to take the struggle out of the mortgage application process, our team is ready to assist.

You can get started with YouBroker here: https://youbroker.com.au/get-started 

Conclusion

Regularly checking your financial health is important. And your home loan is a big part of how your financial situation is tracking.

To make sure you’re getting the best deal and service possible, refinancing your loan can be a great decision to save you thousands on fees and interest. But you want to make sure your new loan is a sound decision.

The above tips will help you to make sure your move to a new mortgage arrangement is a successful one. And if you need any help with refinancing, YouBroker has a knowledgeable and accredited team to assist.

Are you interested in more articles on finance, real estate, and more? Check out the YouBroker blog here: https://youbroker.com.au/articles/