In a majority of cases, homeowners turn to mortgage switching to take advantage of lower market rates, to cash out a portion of their equity or to simply reduce their monthly payments with an extended payment term. If you are considering changing mortgage lenders, it’s important to note that your existing home loan is considered an entirely new loan to the new lender.
Generally, there will be no need to engage a solicitor or settlement agent, however, you will still need to get your property valued. Swapping your loan for a different home loan under the same bank is simply considered loan transferring.
The process is very simple if you are simply changing loan products. If you are increasing the loan amount or extending the loan term it will require a new assessment of your income and a new valuation as a new loan application would.
Changing the way you view your home loan and making sure it stays in line with your lifestyle and needs is a great way to manage your money. In this blog, we’ll be looking at the ins and outs of a mortgage transfer to another bank, why you should consider it, how you can start the process and if you qualify to switch.
What is Mortgage Switching?
Mortgage switching is also known as refinancing a home loan. This is the process in which homeowners replace an existing loan with a new loan that includes different terms. However, if you are looking to undertake this process with a bank you use on a day-to-day basis, rather than finding a new one, it is called mortgage transferring.
There are numerous reasons as to why people consider changing mortgage, but the most common reason is to get hold of a lower interest rate or to use home equity for a separate purpose. In order to get a mortgage transfer to another bank, a lot of steps need to be undertaken to make sure you’re you are getting the best terms for your loan. From negotiating with your existing lender, comparing your options, to applying for a new loan, the process can be easy if you have the right information and know exactly what you are after.
Why Would I Refinance?
With home loan rates hitting a record low this year after the Reserve Bank of Australia reduced cash rates to 0.10 per cent, lenders have quickly reduced rates that are being charged on mortgages. There has never been a better time to compare your home loans and consider changing mortgage lenders to better your finances and potentially save you a lot of money.
Your mortgage transfer to another bank doesn’t need to be a daunting process and eliminating all the in-between fundamentals makes the process a lot easier than it would have been the first time around. Although while there are still a few things that you will need to do, the results will be completely worth it.
Do I Qualify for a Mortgage Switch?
To be eligible for mortgage switching you must meet a certain criterion, and although qualifications may vary depending on the lender and loan type, there is a general outline that homeowners must meet to secure a new loan.
One of the most important requirements that go into changing mortgage is good credit. It doesn’t need to be perfect for you to qualify, but the better that your credit history is, the higher the odds are of receiving a loan approval at a lower rate. Getting familiar with your loan-to-value ratio is also important if you want to qualify for the switch. The key ratio to make mortgage switching cost effective is an 80% loan-to-value ratio and the maximum ratio is a 90% loan-to-value ratio. To qualify, your income and current financial position will also be reassessed.
Will Refinancing Affect My Credit?
Lenders may use your credit score to help determine your ‘credit worthiness’ and ability to mortgage switch. As we mentioned above, you don’t need a perfect credit score, but being able to show your discipline with repayments will get you closer to loan approval. During the mortgage switching process, you will be asked to provide information about your income, expenses, assets, and liabilities – the same way you did when you took out your existing loan.
These processes are widely known as a ‘hard’ credit enquiry and applying for one of these can cause your credit score to slightly fall. This can happen especially if you don’t have a very long credit history. Keep in mind, if you are declined, it doesn’t typically mean your credit score will suffer any more than if you were to be approved, however, the hard enquiry will appear in your credit file.
How Can I Switch My Home Loan?
If you’re interested in mortgage switching, Oak Tree Finances is here to help. Negotiate with your existing lender for better repayment options before you start to compare your loan options. Once you decide you’re ready to kickstart the process, give us a call on 0404 403 066 or contact us online and our friendly home loans Gold Coast team will assist with the application process of your new loan.