Home loan refinancing is an option that many people take into account. When the payments for the existing loan are too much to handle, especially due to high interest rates, home loan refinancing can save the day. It allows you to take out a new loan with the same lender or with a new bank and use the funds to pay off your existing loan.
You will still make regular payments, but this time for the new loan, which may have a much better interest rate.
How exactly do you refinance your home loan? This post has all the information you need on the matter.
Why Refinance a Home Loan?
Before you move forward with loan refinancing, let’s address one important question: why do people refinance their home loans?
Well, home loan refinancing can have a lot of benefits, such as:
- Granting you access to better loan features
- Making it easier for you to handle your finances
- Allowing you to pay off your old home loan much faster
- Giving you the chance to obtain a much lower interest rate
- Granting you access to the equity in your house for some extra cash
- Letting you switch to a new loan type
However, home loan refinancing is not always suitable, and can sometimes bring some drawbacks. Some lenders charge fees for things like application and valuation, while old lenders might require you to pay a fee for terminating your existing loan.
Besides, your credit score could be affected in the process.
How to Refinance Your Home Loan?
Have you decided that home loan refinancing is the right move for you? If that’s the case, here are the steps necessary for this process:
- See How Much Your Existing Loan Costs
When you are paying off a home loan, you must be aware of how much interest you’re paying, but also other fees you have to handle. Knowing this will help you figure out what to look for when refinancing your loan, ensuring you get some better features.
In case you are not aware of your interest or other fees, don’t hesitate to check the Internet banking platform of the lender or look at a home loan statement. It should list your interest rate, as well as potential fees and other costs of your current home loan.
- Try to Get a Better Deal from the Same Lender
It might be tempting to move to a different lender, especially when you feel like your existing one will always charge you high rates. However, it is possible to do the home loan refinancing with your existing lender and get better rates.
Consider reaching out to the lender and tell them you are interested in refinancing your loan. They may be willing to offer you a better rate. Bear in mind that your chances of getting better rates are instantly higher if you are always paying off your monthly installments on time.
- See How Much It Costs to Switch Lenders
If you cannot get better rates from your existing lender and consider moving to a different one, check out how much it’ll cost.
Sometimes, you have to deal with fees if you want to pay off a loan early. It will require an exit fee, and you must be ready for that. Not only that, but your new loan might also bring some fees, such as an application fee, valuation fee, and settlement fee.
Look at the costs and see if it’s worth the move.
- Compare the Rates of Different Lenders
As you’re shopping around for a new lender to refinance your home loan, you should look at as many options as possible. Compare them to each other, but also to your existing loan.
Pay attention to aspects such as annual fees, the possibility of making extra repayments, as well as features like split loans, redraw facilities, and offset accounts. This will help you find a lender that offers better rates and features, leading to an overall lower payment towards your new debt.
- Send the Application
Once you find the loan with the best rates for refinancing, you can send your application. Usually, you need to provide your personal information, details about your income and employment, as well as property and existing home loan information.
However, application processes are different from one lender to another. The good news is that online application is available with many lenders, simplifying the process.
It may take a few business days to get a response from the lender.
- Leave the Old Loan
If your application is approved, the new lender will reach out to the old one so you can exit the home loan successfully. Then, matters such as title transfer will be taken care of as the two lenders communicate.
When the settlement phase arrives, your new loan will be used to pay off the existing one. It can take up to 2 weeks to get the settlement.
Home loan refinancing can save you from a bad interest rate and inconvenient features. Do your research and ensure you find the best offers before you refinance your home loan