One of our Solicitors in our property team, Riley Boyle, answers some of the frequently asked questions we receive in relation to refinancing a mortgage. If you are thinking about refinancing, our property team would love to help you!
What is refinancing a mortgage?
In essence, refinancing is when you replace your current mortgage with a new mortgage. The standard process of a refinance is that you pay off your existing loan with your current bank, and take out a new loan with a different bank. Your new loan will generally have different terms and a different interest rate.
Why would you refinance?
There are many reasons why you might consider refinancing. Some common reasons are:
- Obtaining a lower interest rate: You may have already seen the recent news that showed some banks have been offering “under the line” mortgage rates to new customers, while advertising a much higher interest rate to existing customers. By shopping around, you can often secure a lower interest rate with a new bank.
- Borrowing more funds: Sometimes customers will decide they need to borrow more funds and want to change their lending structure. This is often the time to consider switching to another bank by refinancing.
- Dissatisfaction with your current bank: You may be unhappy with the services that your current bank is providing, and decide to switch to a bank that aligns more with your values.
What are the costs of refinancing?
While you may save money with a lower interest rate, it may not be worth it after you factor in the upfront costs of refinancing. You can discuss your options with a mortgage broker, and they may be able to assist you with evaluating the costs and comparing your options. Some costs to consider when refinancing are as follows:
- Break fees or early repayment fees on your current loan: There may be unexpected fees involved with repaying your loan early. If you are currently on a fixed term loan, there may be a cost involved with breaking this. Make sure you discuss these fees with your bank before you decide to
- Cash reward clawbacks: Banks will often offer a cash incentive for signing up to their bank when you take out a home loan. The cash incentive will often include terms that you must stay with the bank for a certain amount of years. If you choose to switch banks, your current bank may request that you repay this cash incentive.
- House valuation fees: Sometimes your new bank will require a house valuation when you refinance. The bank may organise this for you, but you will still be responsible for the cost. Make sure you discuss with your bank whether they will require this, and if so, factor this into your calculations.
- Legal costs: When you refinance, you will need to go over the loan documents with your lawyer. Your lawyer will also need to discharge the mortgage currently registered on your property title and register a new mortgage on your title. Law firms will often have a set fee for refinancing, so you can always call and ask for an estimate.
What is the next step?
If you have evaluated the costs of refinancing and decide to go ahead with your refinance, you can discuss and agree on the details with your lender and provide your lender with your lawyer’s details. You should let your lawyer know at this stage, as your lender will send the lending documentation direct to your lawyer to review.
Your lawyer will let you know once they have received the documentation, and will review the loan documents and go over the documents with you. You can let your lawyer know if you have any questions about the process, and they should be able to help.