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Your refinancing questions answered

If you already own a home, you've probably heard a lot about refinancing. But while you may have heard a lot about refinancing, how much do you actually know the subject? Before you even think about refinancing your mortgage, it is important for you to understand what refinancing is, how it works and how it will affect you and your bottom line.


If you already own a home, you've probably heard a lot about refinancing.  But while you may have heard a lot about refinancing, how much do you actually know the subject? Before you even think about refinancing your mortgage, it is important for you to understand what refinancing is, how it works and how it will affect you and your bottom line.

In this article, we answer some of the most commonly asked refinancing questions to help you understand whether this mode of attack is right for you and your financial situation.

Q: What is refinancing?

A:In its simplest form, refinancing is the replacement of an existing debt obligation with another debt obligation under different terms. Refinancing can allow you to extend the length of your loan and take advantage of lower interest rates in order to substantially reduce your monthly mortgage payment.

Q: How much will refinancing cost me?

A: While there can be some fantastic benefits in refinancing your home loan, there are costs associated with this action.  As such, it is important to weigh up the different expenses that can be involved to make sure it is the right choice for you. While the refinancing costs will vary from borrower to borrower depending on their unique set of circumstances, as a general rule of thumb, refinancing could potentially cause you to incur the following costs: exit fees, borrowing costs, Lender's Mortgage Insurance and Stamp Duty and fees.

  • Exit fees may apply when you pay out of a loan early or break your fixed term.
  • When you refinance, some lenders will charge various borrowing costs, including: a loan application fee, valuation fee and settlement fee. It is important to note that not all lenders will charge these fees and others will be happy to negotiate on the price.
  • Lender's Mortgage Insurance (LMI) will apply if you borrow 80% or more of your home's value. While you may have paid LMI when you first took out the home loan, it is important to note that this fee is not transferrable and will have to be paid every time you borrow above 80% of the property's value.
  • Stamp duty may be payable when you refinance, though it is important to note that this will vary depending on your location. 

Q: Will I save on interest when I refinance?

A: One of the biggest reasons for refinancing your mortgage is to take advantage of lower interest rates, however you must have good credit in order to qualify for these rates. Take the time to check your credit before you go through the lengthy refinancing process. The average consumer has a credit score of 750, but you typically need a higher score in order to qualify for lower rates. A mortgage broker can help you better understand whether your credit score is high enough for you to take advantage of a low interest rate.

Q: How can I be sure that I'm getting the best deal?

A: You'll have to choose a lender when you're refinancing, and the interest rates and fees offered by each lender can vary widely. It's important for you to calculate the total cost of refinancing by taking both interest and fees into account. A mortgage broker can help you get the best deal by allowing you to compare offers from many different lenders.

What to do next?

Have you decided that refinancing is right for you? If so, then it's time to consult with a mortgage broker. A broker can help you determine whether you'll save money when you refinance. Working with a professional who has already established a strong relationship with several different lenders also allows you to access the best offers. 

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