If you’re wondering ‘what does refinance mean?’, the answer is pretty simple – The refinance process involves replacing an existing loan with a new loan with different terms. There are many reasons homeowners do this, but the most common is to get a lower interest rate or to use home equity for another purpose. In today’s article, we look at ‘what is refinancing?’ and the process you can expect to take when refinancing a home.
What is refinancing: The process of refinancing
1. Check the motivation
You will sit down with a home financing advisor to discuss your current circumstances and why you would like to refinance. This includes looking at your financial history, assets, income, expenses, and liabilities. Your advisor will provide you with possible refinance options that suit your needs.
Common reasons homeowners choose to refinance include:
Change from variable to fixed (and vice versa)
A homeowner may want to change to a fixed rate to have more security and better control of their budget, especially if interest rates are increasing. If a homeowner originally chose a fixed rate and wants to move to variable there will be costs to make these changes so you should discuss this with your mortgage broker before making any decisions.
Shorter loan term
If a homeowner is now in a better financial position than when they originally agreed to a term, switching to a shorter term will allow them to pay a house off quicker.
Use home equity
If a homeowner has paid off a substantial amount of their mortgage or the value if their house has increased since they bought the property, they may have the option to use their equity to buy another home or access equity for any other purpose such as renovating an existing home.
Read more info about ‘what does refinance mean’ and reasons Australian homeowners choose to refinance their mortgage here.
2.Find a lender
Once you have a rough idea of the sort of deal you’re looking for, it’s time to find a suitable lender. A mortgage broker will have a wide network of lenders at their disposal and should be able to find you a good deal based on your situation.
3. Application process
Once you and your broker have found a loan option that suits you, you’ll begin the application process. This will typically involve getting documents ready such as payslips, tax returns for the last six months of home loan statements and other debts, identity verification, and credit information.
As part of the approval process the lender will likely arrange a property valuation to work out current market value. With many lenders your mortgage broker can arrange for the valuation to be done before the loan application is submitted to the lender to speed up the process.
As part of loan assessment a lender will take a thorough look at your financial history and see if there are any red flags to suggest you won’t be able to make payments. This might include your job history, assets, credit reports, home appraisal and more. To increase your chances of getting official approval, make sure you’ve kept on top of debt repayments and entered all information correctly.
6. Final approval and settlement
Once final approval has been made by the lender, you’ll be able to officially settle your new loan. This part of the process will usually involve the lender arranging the settlement of your old loan with your previous lender and setting up the new one.
Thinking of refinancing a loan?
We hope you’ve enjoyed reading our article on ‘What is refinancing?’ If you want to get a better home loan term, contact Oak Tree Finance today to find out which home loan works for you. Or if you have any more questions on ‘What is refinancing a home?’, you can call us on 0404 403 066, email us at email@example.com or via our online form, and a home loans Gold Coast team member will be in touch shortly.