The Definitive Guide to Refinancing

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Navigating the intricacies of mortgage refinancing can seem daunting. In essence, refinancing simply involves transferring your current debt from one loan product and/or lender to another. 

And while the process might seem complicated, a timely refinance can save you thousands of dollars in the long term, by lowering your interest rate and helping you consolidate higher-interest debt. It may offer opportunities for wealth building and even help you navigate life challenges like a relationship breakdown.

In this guide, we’ll help you unpack the process, benefits, and prerequisites of refinancing your mortgage. Empowering you to decide whether or not refinancing would be the right choice for your financial situation. 

Reasons to Refinance Your Mortgage

Before initiating the process of refinancing your home loan or switching lenders, it’s vital to gain clarity on the reasons why you’re choosing to go down this route. Some of the popular reasons for refinancing a home loan are:

Better Interest Rates

Refinancing allows you to replace your existing home loan with a new one that offers a lower interest rate. If interest rates have fallen significantly since you took out your initial mortgage, refinancing could allow you to lock in the lower rate. 

Refinancing could also enable you to access better interest rates if your creditworthiness has improved since you obtained the original home loan. Should your credit score be higher (or your loan-to-value ratio lower) compared to when you secured the initial loan, you might now qualify for more favourable interest rates.

A lower interest rate could significantly reduce your monthly repayments. And potentially save thousands of dollars over the life of the loan. Refinancing could also provide you with the opportunity to switch from a variable to a fixed interest rate or vice versa. Depending on your financial goals, you could use refinancing as a way to gain more stability or flexibility in your finances.

For instance, let’s say you took out a $500,000 mortgage five years ago at an interest rate of 4.5% over a 30-year term. With monthly repayments amounting to approximately $2,533.

Now, if interest rates happen to drop significantly, it might lead you to explore refinancing options.

After having made steady repayments for five years, your LVR would be lower than what it was, when you first took out the mortgage. 

With your reduced LVR – and interest rates in the wider economy also having gone down – you now qualify for a lower interest rate of 3.5% on a new 25-year mortgage term, prompting you to refinance.

With these numbers in mind, let's calculate the potential savings from refinancing:

Original Mortgage:

• loan amount: $500,000
• Interest Rate: 4.5%
• Term: 30 years
• Monthly Payment: $2,533

To calculate the potential savings from refinancing, we need to find the remaining loan balance after 5 years of payments on the original mortgage, and then use that as the new loan amount for the refinanced mortgage.

Number of monthly payments made = 5 years × 12 months/year = 60 payments

With a loan amount of $500,000, an interest rate of 4.5%, a term of 30 years, and 60 monthly payments made, the remaining loan balance after 5 years is approximately $450,000.

Refinanced Mortgage:

• Loan Amount: Still $450,000 (no additional borrowing)
• Improved Interest Rate: 3.5%
• Term: Reduced to 25 years
• Monthly Payment: $2,015

So, your potential monthly savings would be $2,533 - $2,015 = $518

By refinancing, you’d have reduced your monthly mortgage payment by $518. Over the life of the loan, you’d end up saving approximately $155,400. (These are estimates only. For precise figures, please consult a UNO mortgage broker.)

Changing the Loan Features

While the interest rate is important, there’s more to a home loan than just that. Refinancing your mortgage to change the loan features could help you pay off the loan sooner or reduce the monthly payments. 

You might prefer a mortgage option featuring offset transaction accounts, which is simply a bank account linked to your mortgage. You can make deposits and withdraw funds similar to a standard transaction account. The major difference is that the balance in this account is offset against the outstanding balance on your home loan. Meaning that, if you hold money in your offset account for a period of time, this can help reduce the interest payable on your mortgage.

Refinancing could also give you the option to split your loan between variable and fixed rates, make extra repayments, extend or shorten your loan term, or obtain a redraw facility to access extra payments made on the loan. You could also switch to a different repayment frequency that better aligns with your cashflow, such as making fortnightly repayments instead of monthly.

Lastly, refinancing could allow you to switch between fixed and variable interest rates, enabling you to secure a more stable rate or take advantage of market changes, depending on your priorities. You could also incorporate a split loan structure to hedge your bets and better manage your risk exposure. 

In short, refinancing could be a good way to tailor your mortgage features to better suit your current needs and priorities. 

Consolidating Debt

You can use refinancing as a means for consolidating unsecured, higher-interest debt under your (relatively low-interest) mortgage. High-interest debts like personal loans and credit cards can be consolidated into your home loan, through this method. Depending on the lender, your car loan might also be eligible. 

Additionally, if you have more than one mortgage, then moving them all to a single lender might unlock a cheaper interest rate across the board. 

Some benefits of debt consolidation through mortgage refinancing are:

• Streamline your monthly financial obligations into a single, easy-to-manage repayment, rather than several smaller repayments on multiple loans. 
• Since home loans typically have a lower interest rate than personal loans and credit cards, you’ll end up paying less interest overall. 
• By consolidating all your loans into a single debt account, you can avoid the fees from multiple open accounts.

However, you do have to keep in mind that by combining your credit cards and personal loans into your mortgage, you’re essentially converting unsecured debt into secured debt, with your home as collateral. 

Potentially paying more interest by extending your loan term, accumulating more credit card debt, and the temptation to tap into your home equity for unnecessary spending are some of the other key concerns. In short, debt consolidation might be a useful tool, but careful financial management is required to make the most of it. 

Accessing Equity

Refinancing can provide an avenue to unlock the equity you’ve built up in your home. Your equity represents the portion of your home that you fully own, calculated by subtracting the outstanding balance on your mortgage from the current value of your home. 

If your home is worth $600k with an outstanding mortgage balance of $400k, the equity you have in your home is $200k. When refinancing, most lenders would offer you up to 80% of the property’s current market value. As such, you might be eligible for a loan of $480k (which is 80% of $600k). 

Since the outstanding balance on your original mortgage was $400k, you will have $80k left over even after paying off the original loan with the new one. You can take this $80k out in cash, to fund other expenses. Typically, this process is known as a cash-out refinance. 

Unlocking the wealth tied up in your home could allow you to deal with emergencies or take advantage of financial opportunities in ways that might otherwise have been out of reach. You can use the extra funds for various purposes, including: 

• Paying for home renovations
• Investing in shares or managed funds
• Securing a deposit for an investment property
• Making large purchases like a car or an international holiday

One major advantage of using a cash-out refinance is that it allows you to access funds at a much lower interest rate, compared to a personal loan or a credit card. You do have to be careful, though, as it could lengthen the repayment duration of your home loan, resulting in higher overall interest payments. 

Energy Upgrades

With Australia's abundant sunshine, installing solar panels in your home can significantly slash electricity bills over the long term. But the benefits go beyond just savings. Consider pairing your panels with batteries for an uninterrupted power supply, reliable energy storage, and increased self-reliance. Heat pumps are another excellent addition, offering energy-efficient heating and cooling to help lower your energy costs as well as your carbon footprint.

You can use a mortgage refinance to leverage the equity in your home and invest in these energy-efficient upgrades. Over time, the resulting savings on your energy bills could outweigh the costs of refinancing and any additional interest. 

Moreover, these upgrades enhance property value, while also making the house more appealing to environmentally conscious buyers. Plus, many government incentives and rebates exist to help offset the cost of renewable energy installations. These include the Victorian Energy Upgrades program and the Small-scale Renewable Energy Scheme. 

By refinancing to invest in energy upgrades, you can save money on utility bills while also contributing to Australia's transition towards a more sustainable future.

Refinancing After a Relationship Breakdown

After a relationship ends, deciding how to handle the shared mortgage often becomes a pressing concern. 

If both names are listed on the mortgage agreement, then you and your partner will both still be responsible for making repayments. This is irrespective of the circumstances surrounding the breakup or where either of you is residing currently. 

So, even if one or both of you has relocated, the mortgage still needs to be paid, alongside managing your new accommodations and living expenses. This financial commitment can lead to significant additional stress, so be sure to carefully explore your options. 

The four common post-breakup mortgage options are as follows:

• Selling the property
• Refinancing the home loan in one partner’s name
• One partner buying the other out
• Continuing with the joint mortgage payments

It’s worth seeking professional advice before making a decision. A legal professional or experienced mortgage broker could help you figure out what post-breakup mortgage arrangements would best suit your circumstances. 

In this article, we'll delve deeper into the second option – refinancing to transfer the home loan in one partner’s name.

Refinancing a Joint Mortgage

In situations where one of the two partners retains ownership of the marital home, refinancing the mortgage may become necessary. If you’re the one retaining ownership, refinancing could help you secure a new loan solely under your own name. Here are some of the benefits of doing so:

• Refinancing enables you to assume full responsibility for the loan repayments, removing your ex-partner's financial ties to the property.
• It’ll also help you establish sole ownership and remove the other party’s name from the property title. 
• As a result, you’ll gain complete control over all future decisions regarding the property, such as selling or renting it out. 
• Refinancing will also give you an opportunity to renegotiate the terms of the mortgage, to better suit your current financial circumstances. 
• You could renegotiate various aspects of the loan, such as the repayment schedule, loan tenure, and interest rate, potentially leading to lower monthly payments or more favourable terms.

To take advantage of this option, you must qualify for the mortgage independently, based on your individual income, credit history, and financial situation. It’s worth noting that after a separation, your living expenses might decrease. And this could free up more money in your budget for repayment. 

The refinancing process will also incur certain fees and closing costs, which you must be financially prepared to handle. Your individual credit history, income, and debt-to-income ratio will determine the interest rate and mortgage terms you’re eligible for. 

Whether you stay with your old lender or choose a new one for the mortgage refinance, the lender will assess your ability to comfortably make the repayments on your own, without the supplemental income provided by your ex-partner. Additionally, they'll take into consideration expenses related to your children and any child support payments. 

The most reliable way to assess this is by consulting with a mortgage broker and thoroughly analysing your current (and projected) financial situation, to determine whether or not you can comfortably afford refinancing the entire mortgage on your own (rather than maintaining a joint mortgage with your ex-partner).

Legal Considerations and Implications

If you’re wondering how to manage your mortgage after a breakup or divorce, you must consult a lawyer specialising in family law or a trusted mortgage broker with experience in these types of situations. They can help you navigate the legal intricacies of property ownership changes and guide you smoothly through the refinancing process. 

Some of the key legal considerations to keep in mind are:

1. Ownership Rights or Laws: The type of ownership and the legal agreements in place – such as a separation agreement – could have an impact on your refinancing efforts. The existing ownership structure will also play a role. Whether it is joint tenancy or tenancy in common – that will have an effect on how the refinancing process is carried out.
2. Financial Liabilities: Your financial situation might change after a breakup. Be transparent with your current (and potential) lender about these changes. Lenders will assess your income, expenses, credit history, and debt-to-income ratio before approving a refinance. Being upfront about your new situation is the best way to avoid legal issues in the future.
3. Documentation: If you’re trying to refinance a joint mortgage following a breakup or divorce, you’ll typically need legal documentation and consent from all parties involved. Documents like title transfers and loan agreements must be properly prepared and presented, in order to accurately reflect the new ownership structure and prevent future disputes. 

To smoothly navigate mortgage refinancing after a relationship breakdown, you should seek legal and financial advice from trusted professionals. This could help you avoid costly legal errors that may lead to future disputes and lawsuits.

Refinancing to Save Money

If you do your research (and consult with an experienced broker or financial advisor), refinancing your mortgage could potentially save you a lot of money. It could help you secure a lower interest rate or a loan with more favourable features, allowing you to pay the mortgage off faster. 

But to maximise your cost savings, you must take into account the associated fees and penalties (if any), potential LMI premiums, current market conditions, and your own credit history. 

Taking these factors into account will enable you to calculate the break-even point, determining whether or not refinancing would be financially beneficial in your current situation. At UNO, our brokers use specialised tools to calculate your net savings and ensure refinancing makes sense financially.

Here are a few steps to consider before finalising your decision.

Analyse the Potential Cost Savings

Running the numbers is necessary to ensure that refinancing actually saves you money. Here are the steps you need to take, to analyse the potential cost savings. 

• Compare the offers from multiple lenders to estimate the maximum interest rate reduction you can achieve through refinancing. 
• Monitor interest rates in the broader economy. These can fluctuate based on inflation and the RBA’s monetary policy. Refinancing when interest rates are low could lead to greater cost savings. 
• Use a mortgage calculator to compare your current monthly repayments to the projected repayments on a refinanced loan.
• Consider whether refinancing will push your loan-to-value ratio (LVR) above 80%, triggering costly lender's mortgage insurance (LMI) premiums and potentially negating any savings. 
• You’ll incur certain costs like discharge fee from your current lender, closing costs, application fee for the new loan, mortgage registration fee, etc. You need to factor these in when calculating your overall cost savings. 

While a comprehensive analysis of your home loan refinance options may require time and effort, especially if you’re trying to do it all by yourself, engaging an expert can help streamline the process.  

They can handle the complex calculations and data analysis, giving you the accuracy and confidence you need to make an informed decision, with minimal input required from you. With this approach, you can ensure you're making the best choice for your financial goals and not missing any critical factor or number in the calculations.

Identify If the Market is Favourable for Refinancing

The Reserve Bank of Australia (RBA) can influence interest rates through its cash rate target. This can have a massive impact on whether or not the market is favourable for refinancing. 

When the RBA decreases the official cash rate, banks and financial institutions tend to follow suit, lowering their interest rates on loans (including mortgages). This can provide you with an opportunity to secure a new mortgage at a lower interest rate, through refinancing. Doing so would lead to lower overall interest costs as well as lower monthly payments.

A significant portion of Australian home loans (around 90%) are variable-rate loans. Hence, there’s usually always an opportunity to refinance to a cheaper loan. This is driven primarily by banks and lenders offering more competitive rates to attract new customers. Consequently, existing customers often find themselves on less favourable rates over time. 

So, if you’ve had your home loan for a few years, the interest rates are probably not as competitive as they could be. Ideally, you should review your loan rates every year, to ensure you’re not missing out on potential savings by failing to refinance.

Consider the Total Expense

Refinancing involves various upfront costs. These costs can add up quickly, so factor them into your decision-making process when considering a mortgage refinance to save money. 

• When refinancing, the new lender will charge an application fee ranging from a few hundred dollars to over $1,000, depending on the lender and the loan amount you’ve applied for.
• The lender's mortgage registration fee, typically $100 to $200, covers the cost of registering a new mortgage with the state or territory land titles office.
• The valuation fee, usually $200 or more, is required for the new lender to conduct a professional valuation of your property, helping determine its current market value.
• If, after refinancing, your LVR exceeds 80% of the property value, you’d have to pay expensive lender’s mortgage insurance (LMI).
• A discharge fee, of $150 or more, might be levied by your current lender to cover the administrative costs of closing your existing mortgage. 
• If you have a fixed-rate mortgage, and want to refinance before the fixed-rate period expires, your current lender may charge an early exit fee. Potentially amounting to thousands of dollars, the exact amount will depend on the interest rate differential and the remaining fixed-rate term.
• Annual or ongoing fees — such as package fees, redraw fees, or account keeping fees — that the new loan product might have. 

For an accurate estimate of the refinancing costs (specific to your situation) it’s important to discuss prices with your prospective new lender as well as your current one. You can also use a broker to gather pricing from different lenders and compare them to what your current lender offers. UNO brokers use specific tools to quickly find the best rates and fees for your situation, making it easy to see the whole picture before you decide.

Benefits of Accessing Home Equity

Refinancing your mortgage to access your home equity can provide two primary benefits, namely:

Investment Opportunities

The equity you unlock via refinancing can be used to take advantage of investment opportunities which would otherwise have been inaccessible to you. For instance, you can use a cash-out refinance to fund the deposit on an investment property. 

Saving up the 20% deposit for an investment property can be difficult. Yet, most homeowners automatically build equity in their primary residence by making regular mortgage payments, combined with any increase in the property’s market value. 

By leveraging this equity to purchase a second property, you can not only access rental income but also position yourself to benefit from portfolio diversification and long-term property value appreciation.

You can also use the equity you’ve unlocked to invest in shares, managed funds, or in your own business. Some people use it to fund their higher education, so as to increase their future earning capacity. 

Lastly, you could spend the money on home improvements – like a kitchen renovation or bathroom remodelling – to increase the value of your residence. 

All of these have the potential to yield a high return on investment while also helping to diversify your portfolio. Additionally, should you acquire a larger loan amount, it may lead to reduced interest rates, as lenders often offer more attractive rates to borrowers with higher loan values. Hence, if you’re leveraging your equity to build wealth, refinancing could provide a twofold advantage.

Cost-Effective Borrowing

Whether you borrow money to take advantage of an investment opportunity or to deal with an emergency, there will always be a cost attached to the money you’ve borrowed. This is the interest you pay on loans. 

By refinancing your mortgage to access your equity, you can borrow cash at a reasonably low interest rate, compared to personal loans and credit cards. Additionally, you may be able to borrow a significantly larger amount through a cash-out refinance than a personal loan. Allowing you to fund substantial projects like a home renovation or a multi-year college degree. 

The reason for this discrepancy is that a cash-out refinance is a secured loan, with your house as collateral. This makes it less risky for the lender, since they can repossess your house if you fail to repay the loan. As a result, lenders are willing to offer larger loan amounts (at lower interest rates) to those seeking a cash-out refinance. 

Conversely, a personal loan is an unsecured loan with no collateral, which makes it riskier for the lender. Hence, they typically offer (comparatively) smaller loan amounts at higher interest rates. 

Aside from cash-out refinance, you can also explore alternatives like home equity loans and lines of credit. 

Debt Consolidation with Mortgage Refinancing

debt consolidation involves combining several smaller debts into one large loan – in this case, your mortgage. The end goal is either to secure a more favourable interest rate, or streamline your repayments for easier management. 

This feature is especially helpful for those juggling multiple loans – including credit card debt, personal loans, and car loan – each with different fees, interest rates, and repayment schedules. Through debt consolidation, all of these can be folded into a single ongoing repayment each month, helping save both time and money. 

Here are the steps to successfully consolidate your debts through mortgage refinancing:

Define Your Objectives

You must be very clear about your goals, to get the most out of refinancing. If you're facing a complicated debt situation and feeling overwhelmed, it can be a good way to simplify your finances. However, mortgage refinancing is not a quick fix for credit card debt or high-interest loans. 

If the new loan isn’t carefully planned and structured, you might end up paying higher interest overall. Furthermore, if you’re not diligent about eliminating the consolidated debts (and not acquiring new ones), you might find yourself burdened with even greater debt than before the refinance.

Hence, if you’re seeking an easy solution for high-interest credit card debt and other loans, this isn’t it. You need to take charge of your spending habits, instead of relying on a mortgage refinance that could exacerbate your financial problems.

Analyse Costs and Benefits

Consolidating debt through a mortgage refinance might seem attractive, due to the lower interest rates associated with home loans. The problem is that many home loans involve additional fees, such as valuation fees, exit fees from the previous lender, registration fees, etc. There is also the possibility of having to pay LMI if the loan-to-value ratio of the refinanced mortgage is higher than 80%. 

So, you need to write down the interest rates and repayment amounts of each individual loan that you’re looking to consolidate. After running the numbers, you may find that the lower interest rates of a home loan are negated by the upfront costs and fees associated with the refinancing process.  

In short, you have to carefully weigh the benefits of a lower interest rate against the upfront costs of refinancing, to determine the financial viability of debt consolidation through this method.

Unless you're an experienced financial professional, navigating the intricacies of refinancing and calculating the true cost-benefit can be challenging. A single mistake or omission in your calculations could lead to a suboptimal outcome. A qualified UNO broker can help you fully understand the process, potential costs, and long-term implications of debt consolidation through mortgage refinancing.

Calculate Loan Amount

Next, the UNO broker will assess your eligibility to borrow the necessary amount by examining the interest rates and repayment figures for each loan you intend to consolidate. Here are the key steps the broker will carry out:

• Take into account the remaining balance of your current mortgage, then combine it with the total amount owed on all the other loans you wish to consolidate. This will give you the total loan amount you need to qualify for. 

Remaining Mortgage Balance + Total Amount Owed on Other Loans = Total Loan Amount Needed

• Calculate the loan-to-value (LVR) ratio that will apply once the refinancing process is complete. It's obtained by dividing the amount of the new loan by the value of your home. If needed, you can arrange for a third-party valuation of your home.

LVR Ratio = New Loan AmountCurrent Home Value

• The LVR ratio will determine how much money you can borrow through a refinance. Most lenders limit the maximum LVR ratio to 80% or less. So, the higher your home's value and the lower the outstanding balance on your current mortgage, the more unsecured debt you can consolidate.
• The first step, once you’ve decided to refinance for debt consolidation, should be to reach out to your current lender, to see if they can offer you a better deal than the one you currently have.

Compare Loan Options

After you’ve discussed options with your current lender, it’s time to explore the refinancing opportunities available from other lenders. When comparing, the two main features you should prioritise are – minimal fees and low interest rates. Since the goal of refinancing is to save money and pay off all your debts as soon as possible. 

Even if UNO wasn’t your original mortgage broker, we can still help you evaluate alternatives to your current lender. If it turns out that staying with your current lender is the optimal choice, we'll help you stay on (and potentially switch to a more advantageous loan product), even if it doesn't benefit us financially.

Your UNO broker will also help you compare lenders on the basis of the loan features they offer, such as redraw facilities, offset accounts, and whether or not they permit extra repayments. 

Lastly, different mortgage lenders may offer varying levels of flexibility when it comes to consolidating different types of debts. So, you’d want to choose one that allows you to tailor the consolidation process to your specific financial situation and debt portfolio.

Some lenders may only allow you to consolidate certain types of debts, such as credit card balances or personal loans. While others may be more accommodating and permit the inclusion of auto loans, student loans, etc. By comparing different lenders, you can identify those that are more flexible and willing to consolidate the specific loan types which you want to address.

Things to Consider When Exploring Refinance Possibilities

When exploring the possibility of a mortgage refinance, you must consider the impact on your credit score and how it will affect your long-term financial goals. Careful forethought will empower you to make informed decisions and better navigate the refinancing process.

The Impact of (and on) Credit Scores

A mortgage refinance will have an impact on your credit score. Here are some of the factors you should keep in mind:

• Credit Inquiries: Each time you apply for a refinance, the prospective lender will pull your credit report for appraisal. This can result in a hard inquiry on your credit file. Too many hard inquiries over a short period of time can negatively impact your credit, because it indicates to lenders that you’re actively seeking a loan, which might suggest financial hardship. 
• Credit Utilisation: If you refinance to a loan amount that’s higher than your original mortgage, it will increase your credit utilisation ratio. This is the amount of credit you're using, compared to the total available credit limit. It can make lenders think you’re taking on more debt than you can comfortably afford, thus negatively affecting your credit score. 
• Debt Consolidation: If you're refinancing to consolidate multiple debts into one low-interest home loan, it can improve your credit utilisation ratio and boost your credit score. To take full advantage of this, however, you must make regular repayments and manage the new loan responsibly.

Before applying for a refinance, you must check your credit reports to understand your current standing. Consult a reliable mortgage broker who can provide insights into which aspects of your credit history might affect your potential refinance. Even if your credit history isn't perfect, there could still be better home loan options available than your current one.

Lenders will use your credit history to assess risk. A better credit history communicates to the lender a track record of punctual repayments and prudent financial management. This could help you qualify for lower interest rates and better loan terms. 

Conversely, a poor credit history might make lenders wary of approving your application, since they perceive a higher risk of potential bad debt. Even if your application is approved, you may be stuck with a higher interest rate or less flexible repayment options, as you’re seen as a high-risk borrower. 

Hence, you can secure better refinancing terms (and substantial savings over the life of the loan), by taking steps to improve your credit before applying.

How Refinancing Can Affect Your Financial Goals

There are many ways in which a mortgage refinance can affect your long-term financial goals. For instance, the lower interest rate you unlock will reduce your monthly repayments, freeing up cashflow that could be redirected towards saving for retirement, building an emergency fund, or investing. 

On the other hand, you could refinance to a shorter loan term, thereby increasing your monthly payments so you can pay off your mortgage faster. This could save you thousands in interest over the life of the loan, allowing you to reach financial goals like achieving homeownership faster, eliminating debt before retirement, or even just attaining retirement at an earlier age.

If renovating your home is one of your immediate goals, refinancing your mortgage can unlock the equity you've built up, providing the cash to fund the renovation project. And refinancing to consolidate high-interest loans could enable you to clear all your debts faster and achieve financial freedom. 

To ensure that a mortgage refinance will support your long-term financial goals, you must consult an experienced professional. UNO brokers prioritise your specific financial situation and goals to provide the personalised expertise you need to successfully navigate this process.

Common Mistakes to Avoid When Refinancing

Here are some of the common pitfalls you should try and avoid when refinancing your home loan, in order to optimise your experience.

• Not shopping around and settling for the first offer you receive. To ensure you’re getting the best possible deal, you must shop around with different lenders, comparing rates, fees, and loan features. Even a small difference in interest rates could translate to significant savings over the life of the loan.
• Tapping into your home equity with a cash-out refinance, without a well-defined strategy for utilising the funds. A cash-out refinance can help you deal with an emergency or take advantage of a good investment opportunity. But reckless use of the funds could significantly increase your debt burden and complicate your path to homeownership. 
• Focusing exclusively on interest rates can be a mistake. While securing a lower interest rate is often the primary goal of a mortgage refinance, associated costs like exit fees, property valuation fees, and account keeping fees should also be considered. Upon analysis, you may find that while a certain lender offers lower interest rates, it’s offset by their exceptionally high processing fees. 
• Another common mistake is choosing the wrong loan term when refinancing. While refinancing allows for adjustments to the home loan term, you must not extend it unnecessarily. You might end up paying significantly more interest over the life of your loan, negating the benefits of the lower monthly payments. On the other hand, if you opt for a shorter loan term when refinancing, you should make sure your income is stable enough to comfortably handle the higher monthly payments. 
• Lastly, failing to seek guidance from a professional on your refinancing journey can be a mistake. This is because the refinancing process can be complex and confusing. And the features of your new loan will have long-term financial implications. At UNO, our mortgage brokers have years of experience helping clients make informed decisions and smoothly navigate the refinancing process.

Taking the time to avoid these common pitfalls will help you maximise your savings and achieve all your refinancing goals.

Process and Expectations Around Refinancing

Understanding the process and managing expectations are crucial for a successful refinancing experience. A reliable mortgage broker can guide you through the process and ensure you're prepared for each step. To start, here’s a breakdown of the basic steps you'll likely need to follow.

Researching Lenders and Refinancing Options

The research process for a home loan refinance would have to involve all (or some) of the following steps:

• Comparing interest rates, refinancing fees, and loan features from various banks, credit unions, and non-bank lenders.
• Checking online comparison websites and mortgage calculators to verify the potential savings.
• Obtaining a professional third-party valuation for the property to determine your level of equity.
• Checking if your current lender is willing to offer you a competitive refinancing option.
• Getting quotes and loan estimates from multiple parties. 
• Reviewing the eligibility criteria and application process of each of the lenders.
• Reviewing your own finances to determine whether a variable or fixed-rate loan would be more suitable. 
• Double-checking to ensure that the LVR in a cash-out refinance would remain below 80%, so as to avoid LMI.

Steps in the Application Process

When getting into the application process for a home loan refinance, it’s important to have realistic expectations. While the timeframe for processing the application will vary depending on the lender, you should prepare to be patient, particularly if there’s some complexity to your financial situation or loan requirements. 

The type of lender you choose will also have an impact. Generally, established banks and credit unions tend to have more extensive and detailed application procedures compared to newer online lenders. If in doubt, you should enquire about the expected timeframe when submitting your application. 

Working with an experienced uno mortgage broker streamlines the application process, making it easier and quicker. We have built a customer online application experience that makes it a lot less hassle and effort to get us the data and documents that are needed for a refinance. The typical customer can gather and submit all the information needed for the process in under 30 minutes, or as little as 10 if your financial situation is straightforward.

Documents Required

In order to be approved for a home loan refinance, you’ll need to submit a host of documents, ranging from your income and identity proof to your property papers. Some of these have been listed below:

• Proof of identity, such as your driver’s licence, birth certificate, or passport.
• Income documentation – such as payslips, employment contract, tax returns, or Business Activity Statement (if self-employed).
• A copy of your current mortgage statement and the council rates notice (to verify property ownership). 
• Records of other assets and liabilities, as well as living expenses. 
• Evidence of property value (valuation report or recent sale price of similar properties).
• rental income details, if the house being refinanced is an investment property.

The specific requirements could potentially differ marginally between different lenders. Your UNO Broker will guide you on exactly what is needed and our online platform makes it very easy to upload against a dynamic checklist.

Potential Challenges

Here are some of the potential challenges you might encounter during the home loan refinancing process. Being aware of these in advance will allow you to prepare for them, preventing any surprises along the way.

• Serviceability Issue: Serviceability is the ability of a borrower to comfortably manage the repayments on a loan they’ve taken out. Your credit history and income play a crucial role in determining serviceability. Different lenders have different serviceability models, which can add a layer of complexity to the process. Plus, if your financial situation has declined since your original loan, it might make it hard for you to secure a favourable refinancing deal.
• Equity: property values can fluctuate, and if it has decreased significantly since you obtained your original mortgage, the bank may consider it insufficient collateral for the refinanced loan. Plus, if the property value decreases, so will the amount of equity you have in your home. Most lenders require a borrower to have a certain amount of equity in the property before approving a refinance. And even if the refinance is approved, you’ll have to pay for LMI if equity falls below a certain threshold.
• Interest Rate Volatility: interest rate fluctuations during the refinancing process can be a significant challenge, potentially undermining the benefits of refinancing your home loan. Since the refinancing process involves various steps like property valuation, document verification, and credit checks, it can take up several weeks. During this time, market interest rates can fluctuate, and if they rise significantly, the rate you initially qualified for may no longer be available. Consequently, the expected savings from the refinance would be reduced.

Financial Considerations and Costs

For the refinancing process, you should expect to spend some money upfront to reap the long-term benefits of lower interest rates and better loan features. Here's a breakdown of the costs and financial considerations you should take into account:

• Exit Fee: This is the administration fee for exiting your original home loan, charged by your current lender. 
• Break Costs: If you're on a fixed-rate loan and choose to refinance before the fixed term ends, you will probably incur break costs.
• Application Fee: The new lender may charge a small fee to process your refinancing application.
• Valuation Fee: This fee covers the expenses involved in engaging a professional to determine the current market value of your property.
• Registration Fee: This is the fee you pay for removing the mortgage from your current lender and registering it with the new lender.
• Lender’s Mortgage Insurance: This is meant to protect the lender in case you default on your mortgage. It will only be required if your LVR is below 20% at the time of refinancing, which you should try and avoid. 
• Title Search Fee: This is the cost of verifying ownership of the property and checking for any existing liens or encumbrances.

While these are some of the common fees and charges associated with the refinancing process, you may not have to pay all of them when refinancing your own mortgage. Your UNO broker will guide you through all the associated fees for your prospective new lender/s so you can have confidence in avoiding any unexpected charges.

Other than these upfront costs, you should ensure that your current income is stable and sustainable. And that it is enough to comfortably cover the monthly repayments on your refinanced home loan. Especially if you’re opting for a cash-out refinance, which could potentially increase your monthly payments and reduce the amount of equity you have in your home. 

Alternatives to Refinancing

While the benefits of refinancing a home loan are numerous, many still seek an alternative. There can be various reasons for this. For instance, if there’s been a decrease in your income or a decline in the value of your property since you obtained the original mortgage, then refinancing might prove difficult for you. 

You might also want to find an alternative if the costs of refinancing – such as the break cost and exit fee – are too high. And you might not be eligible for a mortgage refinance if your current debt-to-income ratio is too high; or if there’s a recent blemish in your credit history since obtaining your original mortgage. Plus, meeting the stringent income requirements of many lenders could pose an additional challenge.

Lastly, the hassle of refinancing might not be worth it for you if your current interest rates are competitive or if you’re already nearing the end of your loan term. If any of these factors is keeping you from opting for a home loan refinance, then listed below are some alternatives you could look into.

Loan Repricing

Like refinancing, home loan repricing is a way to lower your interest rates and get a better deal on your mortgage. It involves negotiating with your current lender to secure a reduced interest rate on your existing loan. You can personally negotiate the new rate or enlist a mortgage broker to handle it for you. 

Having prior experience negotiating with banks can give you a significant edge when repricing your home loan. Hence, working with an UNO broker will improve your chances of success, as they have the required expertise.

If successful, repricing could save you thousands of dollars over the life of the home loan. It could also help reduce your monthly repayments, thus alleviating some financial strain.

• Faster and Simpler:

Repricing is faster and simpler than refinancing. It can usually be completed with a single meeting (or even a phone call) with your current lender. You don’t have to spend time researching different lenders and the rates they offer. 

Since you’re staying with your current lender, there's also no need for a full application process, income verification, or property valuation. The paperwork involved is minimal, as you’re just negotiating a change to your existing loan, rather than taking out a new one. 

• Cheaper:

Additionally, repricing is cheaper than refinancing. You only need to pay a one-time repricing fee, which can be a maximum of $1,000, although usually it’s less than that. Since you’re only changing your interest rate, instead of the lender or loan product, the administrative costs involved are much lower. Some lenders might even waive your repricing fee altogether, especially if you negotiate through a mortgage broker.

• Fewer Options:

Repricing is more restrictive than refinancing, offering fewer options. To start, you’re limited to the rates that your current lender offers, which may not be as advantageous as those offered by another bank or credit union.

Also, repricing only allows you to change the interest rate. You can’t change other aspects of your mortgage, such as the repayment frequency, offset account, loan term, redraw facility, etc. Plus, repricing won’t allow you to consolidate other debts or access the equity you’ve built up in your home. 

To achieve things like this you will typically need to go through most if not all the same steps as a full refinance, so it makes sense to use the opportunity to see if there are better options available with other lenders.

Repayment Holiday

A repayment holiday is essentially a brief pause on home loan repayments due to financial strain. Situations like losing a job, short-term injury, or being on maternity leave might call for a repayment holiday. 

It's important to note that interest on your loan will still accumulate during this period. Lenders have varying policies – with most offering a three-month repayment holiday initially, extendable to six months upon review.

This is a temporary arrangement, agreed upon between the borrower and the lender. Following the repayment holiday, the lender will either raise your repayment amount to maintain the original loan term, or extend the loan term by the duration of the repayment holiday. So, if the repayment break lasted six months, your loan term would be extended by the same duration.

Depending upon the terms you’ve negotiated with your lender, the repayment holiday could be handled in one of two ways. The first is that you wouldn’t need to make any payments whatsoever during the holiday interval. Alternatively, you might only have to pay the loan's interest, with the principal repayment being postponed until later.

It's a way for borrowers to get short-term relief when dealing with financial difficulties. As such, the scope of a repayment holiday is much narrower than a mortgage refinance, and it usually leads to higher interest costs over the life of the loan. 

This is because interest keeps adding up even during the repayment holiday, ultimately increasing the total amount you owe. This larger balance stretches out your repayment timeline, meaning more time for interest to accumulate, raising the overall cost of your loan.

Plus, you will typically only get a repayment holiday if you have built up equity in your home through making additional repayments previously.

Home Equity Access Scheme (HEAS)

The Home equity access Scheme (HEAS) is a program by the Australian Government that allows eligible older Australians to access the equity in their home in the form of a non-taxable loan. To be eligible, the recipient of the loan must be pension-age or older. Your property will act as the collateral for the loan. 

You can use this HEAS calculator to figure out how much you’ll be able to borrow, if you opt for this method. Once you’ve been approved for the loan, you can choose to receive the funds either as a single lump sum payment or as regular bi-weekly instalments. You can also opt for a combination of the two, if needed. 

HEAS loans are covered by a no negative equity guarantee. It is a government-backed scheme aiming to provide older Australians with a way to access equity in their homes to fund their retirement. 

The loan, including the interest and fees, is typically repaid from the sale proceeds of the property when the borrower (or the last remaining borrower) passes away, moves into aged care, or sells the property. If you’re eligible, a HEAS loan could be a good alternative to a traditional cash-out refinance.

Extending the Loan Term

By extending the loan term, you can lower your monthly repayment amount, spreading the mortgage over a longer period to manage the repayments more comfortably. If you’re facing cash flow constraints, this option can be very attractive. 

You might have to contact your lender and potentially request a home loan restructure. Although some lenders might allow a simple extension without the need for a full restructure. If available, this is the option you should go for, since it’ll be cheaper and require less upfront spending. 

A longer loan term could also allow you to qualify for a larger mortgage amount, based on your income. And if you anticipate fluctuations in your income over time, stretching out the repayment period could offer some breathing room in case of reduced income. Allowing you to adjust your monthly payments according to your financial circumstances. 

On the flip side, extending the loan term will increase the cost of homeownership by allowing interest to accumulate over a longer period of time. So, you’ll potentially end up paying more interest over the life of the loan. You should carefully weigh the benefits of lower monthly payments against the higher overall expense, before making a decision.

Changing Loan Products with the Same Lender

Switching loan products with the same lender can be a viable alternative to refinancing, if accessing some new loan feature is your primary goal. You might find that your lender now has new products or promotions that weren’t available when you first took out your mortgage. 

If so, you should carefully evaluate the features, fees, repayment options, and interest rates of these new loan products against your current one. Many lenders will allow borrowers to switch to a different loan product within their suite of offerings without going through the full refinancing process, ensuring less hassle and much lower upfront costs.

Also, your existing loan-to-value ratio may be retained when switching loan products with the same lender, which would be beneficial if your property's value has decreased since you took out the original mortgage. 

Despite the convenience of this option, you should keep in mind that your current lender may not offer the best features or interest rates available in the market. So, you should compare their offerings with other refinancing options, to ensure you’re getting the best possible deal. Also, be sure to review the fees, charges, and any potential break costs associated with switching loan products. 

An experienced mortgage broker could better help you evaluate the pros and cons of this approach, to determine if it’s the best one for your current financial situation.

Increasing Repayments

This could be a great refinancing alternative if you want to get ahead on your home loan and pay it off as quickly as possible. It’s a powerful strategy for reducing the overall cost of homeownership and building a stronger financial future. 

Plus, the process is straightforward, with most lenders allowing borrowers to make the required adjustments online or through their app. On the lender’s online portal, you should find the options to “manage repayments” or “increase direct debit”. You can then choose a new monthly repayment amount that fits with your budget. 

Or you could give your lender a call and directly provide instructions to increase your regular repayment amount. You can also make one-off lump sum payments towards your home loan.

Either way, you should check with your lender to see if there are any limits or penalties associated with increasing the repayment amount. You can keep track of your increased repayments through regular statements or online account management.

Here are some of the primary benefits of choosing this option:

• Reduced Interest Costs: By increasing your monthly repayments, you can chip away at the principal faster. This will allow you to reduce the total interest paid over the life of the loan. This strategy will be particularly beneficial in an environment where interest rates are high and expected to rise further, enabling you to save a lot of money in the long run. 
• Faster Mortgage Repayment: Higher monthly repayments will enable you to pay down the principal sooner, allowing you to achieve full, debt-free ownership of your home. Needless to say, this will free up cash flow and provide you with greater financial freedom and security.
• Building Equity: Increased repayments will help you build equity faster, improving your LVR. Having higher equity in your home (and a lower LVR) will potentially make it easier to access favourable loan terms in the future. This will bring you peace of mind, as well as the ability to borrow for future renovations or other home improvement projects at low interest rates. 

To make this strategy work, you’ll need to be financially disciplined, adhere to a budget, and make sure that you have adequate emergency savings – so you’re not derailed by an unforeseen expense or minor household emergency. 

Choosing the Right Refinancing Option

If you’ve decided to go with a mortgage refinance, you must know how to compare different offers and pick the right one. Here are some of the key factors to consider:

Loan Features

When refinancing your mortgage, you should make sure the new loan offers features that best fit your financial circumstances and goals. Compare the loan features offered by different lenders to find the one that best meets your specific needs. Some of the features you might want to look for are:

• Extra Repayments: This feature allows you to put additional funds towards paying off your loan, beyond the minimum monthly repayment. This will help you save on interest costs and pay off the loan faster. If these are among your goals, you should choose a refinance package with minimal restrictions (and no penalties) on extra repayments. 
• Redraw Facilities: This feature gives you access to any extra repayments you've made on your loan, allowing you to use the funds, if needed, for unexpected expenses or investment opportunities. However, some lenders charge fees for redraw facilities, while others impose limitations on redraw amounts or frequency, so check the details before making your choice. 
• Offset Account: An offset account is a type of deposit account connected to your mortgage. The balance in this account is ‘offset’ against your loan balance, reducing the amount of interest you pay. For instance, if you have a $500,000 loan and $50,000 in an offset account, you'll only pay interest on $450,000. This feature can potentially save you thousands of dollars in interest over the life of the loan. The more money you keep in the offset account, the lower your interest charges will be.
• Split Loan: This feature allows you to split your loan into two portions, with one portion on a fixed interest rate and the other on a variable rate. This can provide some stability with the fixed portion while allowing you to take advantage of potential interest rate drops with the variable portion. Choosing a lender that offers flexible split percentages to suit your risk tolerance will empower you to effectively manage your interest rate risk.

Your financial goals will determine which of these features is the most useful to you. If you're focused on paying off your loan quickly, for instance, the ability to make extra repayments without limitations may be most important. 

An offset account could be beneficial if you have a fluctuating income, and want to hedge against that risk by maintaining a healthy balance in the linked account. The interest savings can be significant. Lastly, a split loan would be beneficial for those who want to optimise their interest rate exposure.

A reliable mortgage broker will be able to help you carefully compare refinancing offers to find the best combination of features for your circumstances.

Lender Reputation

Another thing to consider when choosing between different refinancing offers is the reputation and track record of the lender. A lender's reputation can provide a glimpse into the overall refinancing experience and the long-term relationship you’ll have with them.

One of the key factors to research is the lender's customer service record. Look for reviews and feedback from past customers to gauge their responsiveness, professionalism, and ability to address concerns promptly. A lender with a strong focus on customer satisfaction will likely have a smoother and more transparent refinancing process.

Reputation and track record can also help you assess a lender's financial stability. A financially sound lender is less likely to experience operational or liquidity issues, potentially disrupting your refinancing process. Ideally, you’d want to work with a lender that will be around for the life of your loan.

For this, it might be beneficial to check if the lender is a member of industry associations or regulatory bodies, like the Australian Banking Association (ABA) or the Australian Prudential Regulation Authority (APRA). Membership in these organisations often indicates strict adherence to industry standards and best practices, providing an additional layer of credibility.

When researching a lender's reputation, you should consult independent review platforms, consumer advocacy groups, and even seek recommendations from a trusted mortgage broker or financial advisor. A well-regarded lender with a solid reputation will provide you with peace of mind, as well as a smoother refinancing experience.

Focus on the Next Few Years

In a mortgage refinance, the comparison rate reflects the true cost of the loan, including fees, charges, and interest rates; whereas the advertised rate only takes into account the interest rate. Despite this, you should avoid relying solely on the comparison rate when choosing a refinancing offer. 

This is because they can sometimes be misleading, since comparison rates are based on a standardised $150,000 loan over a 25-year period, which may not reflect your actual situation. You might have a larger loan and only plan to stay in it for a few years.

Instead, you should focus on the total fees and charges over a shorter period, such as the next 2-3 years, to get a more useful understanding of the cost of the loan. Regularly review your loan options and consider consulting an UNO broker for assistance. 

UNO’s platform provides financial models that enable our brokers to analyse the total cost over three years for each potential loan product — factoring in interest, fees, and LMI if applicable. 

This offers a more pragmatic approach to choosing the best refinancing loan for your financial situation. From a practical point of view, total cost over the life of the loan is irrelevant, given the uncertainty of future interest rates. Nobody knows what rates will do next month, much less 300+ months into the future.

UNO’s models can help you better understand which loan is likely to be the best deal for you, financially, in the next three years. Rather than making a futile attempt to predict the next 25 years (which is what comparison rates are based on).

How UNO Streamlines Your Refinance

UNO can help simplify and streamline the mortgage refinancing process in a number of ways, including:

• Reducing the effort involved in providing prospective lenders with the data required for the refinance
• Quickly collate the documents needed for refinancing
• Run extensive calculation models to evaluate whether it makes sense to refinance and what is possible given your situation
• Accessing a wide network of lenders and deals simultaneously
• Provide expertise from a broker who is dedicated to you
• Manage the entire process from start to finish to ensure it gets done properly with minimal effort and hassle for you  

As an online mortgage broker, UNO prioritises quick turnaround times and customer satisfaction. Our mortgage brokers, powered by our technology, can sort through thousands of home loan rates – from over 25 lenders – to find the refinancing option that best suits your requirements. 

The comprehensive support (and access to competitive interest rates) that UNO provides can help homeowners save time and money, potentially resulting in thousands of dollars saved on interest payments over the life of the mortgage. 

Concluding Note

Refinancing your mortgage can be a powerful financial decision that unlocks substantial savings, facilitates debt consolidation, and allows you to access equity for investment or emergencies. However, effectively navigating the refinancing process requires careful consideration of interest rates, fees, loan features, and your long-term financial goals.

By understanding the reasons for refinancing, the potential benefits, and the associated costs, you can make an informed decision that aligns with your unique circumstances, including your income, credit history, and future plans. 

Seeking guidance from an experienced UNO mortgage broker can help streamline the process and provide useful insights. Our mortgage brokers will use their expertise and our award winning technology to help you explore a wide range of refinancing options, compare loan features, and negotiate more favourable terms with your chosen lender, ensuring you secure the best possible deal. We’ll also help you navigate the settlement process efficiently, facilitating a smooth transition to your new mortgage.

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