How long does it take to refinance a home loan and what are the steps?

Refinancing is when you switch from one home loan to another, either with your existing lender or a new mortgage provider entirely.

You might do this to lower your home loan interest rate or reduce monthly repayments, but how long does it take to refinance a home loan? We’re here to help guide you.

Refinancing your home loan can take anywhere between a few days or up to 8 weeks – it really depends on the lender and your personal circumstances.

During the refinancing process, the lender will be undertaking a similar assessment as you would have gone through when you first applied for the home loan.

For example, your income and ability to service the loan will be checked. So keep in mind that your dependents, employment, debts, credit score and more will all be taken into consideration, some of which may have changed since you first got a home loan.

Here’s a look at the steps involved with refinancing, which may impact how long it takes:

Do your own homework

First, understand why you want to refinance. You might be looking for a lower interest rate to get your repayments down, or maybe you want extra features such as an offset account.

You might also be considering cash out refinancing to fund home renovations, or a way to consolidate your debt.

Understanding your motivation sets you off on the right foot and also helps new lenders assess what features or changes you’re looking for (or whether your refinance application is too risky).

You’ll also want to determine whether refinancing your mortgage actually makes good financial sense, and is worth your personal time and effort.

Understand the costs involved

The cost of refinancing your home loan varies between lenders, but here’s an overview of what fees may be involved:

• Discharge fee: your current lender will charge you to close your home loan.
• Fixed rate break fee: if you’re on a fixed rate home loan, you could be charged a break fee.
• Application fee or establishment fee: charged by your new lender to set up the home loan.
• Property valuation fee: charged by your new lender to get an up to date figure of your home’s market value.
• Mortgage registration fee: a government charge which pays for your lender to register your mortgage onto the property’s title record.
• Rate lock fees: if you’re refinancing to a fixed rate home loan, you might be able to lock in the interest rate quote you receive when your home loan is approved for a fee.
• Ongoing fees: some home loans may charge ongoing fees.

Check your home equity

Your home equity can affect your chance of refinancing, so before getting too far down the road, it might be worth estimating how much equity you have in your current property first.

For example, if your property is now worth more than it was when you first took out your mortgage, your loan-to-value ratio (LVR) will be lower.

A lower LVR means you have more equity in your home and greater borrowing power. Your loan-to-value ratio can be a powerful bargaining chip when you refinance, because you’re more likely to be assessed as a safe borrower and offered a lower interest rate.

Start the application

The paperwork needed for your refinancing application is likely to be quite similar to the information you provided when you first got your current home loan.

You can expect to provide details such as your ID, proof of income, bank statements, assets, your repayment history and any other credit histories. You might need to pay an application fee once you submit your application as well.

If you’re looking to refinance with your current lender, this is the stage where you should get in touch. If you’re unable to negotiate a deal you want, consider switching to a new mortgage provider.

Settlement

Finally, if your refinanced home loan is approved, you’ll be discharged from your mortgage and issued new documentation for your new home loan.

This is when your new lender will let your current lender know that you’d like to pay out your existing home loan.

You’ll have an exact date of settlement and a final pay out figure. You can then expect to receive new documentation for your new loan to begin making repayments.

Here are our top tips to help you move the refinancing process along:

• Have your paperwork ready for submission. It should have all documents attached and be free of errors.
• Be ready to provide any additional documents to your lender if it’s required.
• Ensure your credit score is in good shape.