What is it?

Mortgage refinancing is the process of replacing an existing mortgage with a new mortgage to another lender (normally a bank).

Why refinance?

There are several reasons for refinancing your mortgage.

• To reduce the interest rate on your loans – your current bank may not be able to match a good rate you see elsewhere.
• Your current mortgage repayments may be unmanageable and taking advantage of a lower interest rate may reduce those payments.
• You may have several debts and wish to consolidate them.  You could borrow sufficient funds from one lender to repay your current mortgage and to repay a car loan, for example, or a store credit card. 
• Your current bank may not be meeting your needs and you feel it is time for a change of bank.

How do you decide?

Make your decision based on sound reasoning – if you answer yes to any of the following questions then a refinance may be worthwhile:

• Am I paying higher interest than I need to?
• Is there a competitive interest rate with another bank which my current bank cannot match?
• Are my mortgage and other regular debt repayments becoming unmanageable – would it be easier to have one repayment covering all of these mortgage and debt repayments?
• If I am on a fixed interest loan with my current bank, are the break costs/penalties outweighed by the savings I will be making on a lower interest loan with a different bank?
• Would I reduce the amount of my mortgage repayments?
• Would I be able to repay my mortgage earlier?

What are the pitfalls?

You should ensure that you will not be paying penalties to your current bank which exceed the interest you may save over the term of a new loan.  Your mortgage broker or the new bank will be able to assist you in calculating those penalties when you meet.

Changing banks normally (but not always) involves the opening of a new every day bank account.  You may need to ask your employer to direct your pay to a new account and let payees you have direct debits set up with (e.g. Council for rates payments, insurance companies, power account, phone account) know you have a new bank account number so that payments continue smoothly.

How do I take the next step toward a refinance?

Once you have made the decision to refinance, you need to approach a specialist mortgage broker or the bank of your choice directly to make an application.  This involves providing that broker or bank with your full income and outgoing details including full details of all debts you are currently repaying.  Providing that information will enable the new bank to decide whether to approve the new loan.

Make an appointment with your broker or the new bank.  They will guide you on what information you need to provide at your first meeting.

You should ask if the new bank can offer a cash contribution and a zero-application fee – a lower interest rate may not be the only benefit of changing banks.

I have a loan approval for my refinancing – what next?

Let your bank or broker have your lawyer’s contact details.  The bank will generate the loan documents required to be signed and will send those to your lawyer to action.

Once your lawyer has received the loan documents, they will contact you and then prepare the new mortgage, seek a discharge of your existing mortgage and arrange to meet with you to sign the new loan documents.  Your lawyer will draw down your new loans and repay your existing loans on a specified settlement date.

Generally, a refinancing can take place within a week of the loan instructions being provided to your lawyer by the new bank.  This will depend on the complexity of your refinancing – remember that if you have several debts to repay the time taken to get the refinancing ready to settle may take a little longer.

What will it cost?

For a limited time, Pier Law are offering a 35% discount on our normal refinancing costs.  Please contact us to discuss further.  Conditions apply.

Article written by Richelle Williams-Hawes.