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

Want to switch home loans, but don’t know how long the refinancing process will take?

In general, it can take anywhere between a few days to a couple of months - sometimes longer. This is because your application depends on a number of factors. 

Some of these include:

• Your financial situation. Lenders might compare your incomings against your outgoings to determine how much you can borrow. In short, the lender needs to check that your financial situation won’t be compromised when refinancing with them.

• The type of refinance. There are several options when refinancing, but a common one is a loan that focuses on the rate and term. In a nutshell, it involves switching your home loan product over to another lender with a new interest rate and term length, while maintaining the same loan balance as your existing loan. 

• The lender you choose. Everyone’s financial situation is unique. Lenders usually take this into account, which may affect the time they need to process your application.

So let’s get down to brass tacks by taking a look at what you might encounter in the refinancing process. 

There are multiple stages involved when refinancing and these might impact the length of time switching your home loan takes. As an example, it might look something like this:

1. Start with your own homework

First, know why you want to refinance? Are you looking for a better rate or extra features? This step gets you off on the right foot and also helps the new lender assess the types of features or changes you’re looking for (or whether your application is in fact risky).

2. Understand your potential costs

Refinancing costs will vary, of course, but some key factors include which lender you’re currently with, where you want to refinance to and even which state you live in. Some examples of fees to pay attention to include:

• Discharge fees: for leaving your current loan.
• Application fees: fee associated with making a new loan application.
• Valuation fees: fee charged by the new lender to cover the cost of getting an up to date value of your current property.
• Land registration fees: to remove the existing mortgage from your current lender and register a new mortgage to your new lender.
• Lenders Mortgage Insurance (LMI): If you have less than 20% equity in your property, your new financial institution may charge this. 
• Ongoing fees: Some home loans may charge an ongoing fee.
• Break fees: If you have a fixed rate home loan, you may also be hit with a contract break cost if you decide to refinance during the fixed rate period. 

3. Actual application

The necessary paperwork for your application might be quite similar to the one you did when you got your existing loan. As such, your lender may ask you to provide details like your ID, your repayment history, incomings, outgoings, assets, liabilities and any other credit histories. Upon submission, you might have to pay for the application fee, too. (But just keep in mind that before you commit to switching, it’s worth speaking with your current lender to see if they’re willing to give you a better deal!). 

4. Equity check

Your equity can affect your chance of refinancing, so before getting too far down the road, it might be worth estimating how much 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 (or LVR) will be lower. This basically means you have more equity and greater borrowing power, and should be in a better position to refinance your home loan. 

5. Settlement

Finally, if your refinanced loan is approved, you’ll be discharged from your existing loan and issued new documentation for your new loan. To start, your new lender will let your current lender know that you’d like to pay out your existing 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.

Yes, there are some simple things you can do to help the refinancing process along.

1. Ensure you have your paperwork ready for submission. 

2. You might also want to give your application a once over beforehand. Sometimes a read through can help you pick up on errors that were previously missed. 

3. Check whether you have attached everything that is required.

4. Be ready to provide any additional documents to your lender if they request it.

It’s important to remember that everyone’s situation, and every lender is different. Therefore, the amount of time it will take to refinance your mortgage will vary.

That being said, if you’ve decided to go through with refinancing your home loan, there are many loans to choose from and it’s worth comparing them.

Compare refinancing options

If you’re eager to check out some home loans but don’t know where to start, our team of experts at Mozo have compiled some of the top refinancing options on the market. Compare and contrast some of the best home loan options below!