How Quickly Can I Refinance My Home Loan After Purchasing A House?
How long do you have to wait before you can refinance your home loan? Read on to learn more about the timeframes around refinancing.
So, you’ve just bought your house and now that the dust has settled you’ve realised that there’s a better mortgage out there for you. But how long do you have to wait before you can refinance your home loan? Well, that depends. Read on to learn more about the timeframes around refinancing.
Refinancing after settlement
When it comes to refinancing, there are no hard and fast rules around when you can or can’t refinance. With that said, there are generally certain times when it makes more sense to refinance than others.
It’s often worth waiting one to two years to refinance after purchasing your property. The main reason is that refinancing so soon after settling on your home doesn’t often make a whole lot of financial sense. Setting up a home loan can cost hundreds if not thousands, so there’s often not much point in going through the refinancing process again so soon after setting up a home loan. Plus, you’ll also have to factor in the costs of closing your existing home loan.
If you set up a fixed-rate mortgage, then you’re usually locked in for a period of anywhere from 1-4 years. While it’s possible to get out of a fixed-rate term early, this comes at a cost with a break fee being payable as compensation for the lenders’ loss.
But that’s not all. Before refinancing your home loan, there’s a stack of other factors that you should think about to make sure you’re getting the most bang for your buck.
Factors to consider before refinancing
When it comes to refinancing your home loan, the aim of the game is to make sure the potential savings outweigh the costs of refinancing. With this in mind, here are a few questions worth asking to help you determine whether refinancing is the best option for you.
What are the costs of refinancing?
From closing down your current home loan to setting up a new mortgage, lenders charge a few fees as standard. Depending on how your current home loan is set up, your existing lender might just charge you a discharge or termination fee to cover the legal and administrative costs of closing your loan. If you took out a fixed-rate loan, you’ll incur a break fee for exiting early.
But the costs don’t stop there. As for setting up your new mortgage, you’ll typically need to fork out for:
- Establishment or application fees,
- Property valuation fees,
- Settlement fees, and
- Land registration fees.
While different lenders charge different fees, all in all, you could be looking at anywhere from $100 to $2,000+ to refinance your home loan. So, if you’ve only just spent up to set up a new home loan after purchasing your home, it might not make sense just yet to go through the process again.
Do you have enough equity?
For many borrowers, lenders mortgage insurance (LMI) is just part and parcel of the home-buying process. So, if you’ve just settled on a home with a deposit of less than 20%, you’d be all too familiar with the sting of LMI. Depending on your deposit, chances are you won’t be able to build up enough equity to cover that 20% within the first few months of buying, so you could be slugged with another round of LMI if you choose to refinance so soon after buying. LMI is a non-transferable fee, so if you switch to a new bank you’ll have to take out LMI again to offset the risk for your new lender.
How will it impact your credit score?
One of the factors that lenders consider when assessing your refinancing application is your credit score. And each and every time you submit an application to refinance or take out a new loan, it impacts your credit score. Moreover, a rejected refinance application can have a negative impact on this score.
If you’ve recently bought a home and set up a new mortgage, it could be worth letting the dust settle before applying to refinance. That way it’ll have less of an impact on your score, so you’re in for a better chance of approval in the future.
You can check your credit score by using a free online tool like Credit Savvy. If it’s not quite up to scratch, you might want to start taking steps now to improve your credit score before it comes time to refinance.
Has your financial situation changed?
Usually, when you buy a home, you want to be in a stable job with a regular income so you can keep up with your new mortgage repayments. With that said, change is inevitable, so if something has happened to decrease your income, increase your expenses or change your financial situation in another way, it could impact your ability to meet the new bank’s lending criteria.
How much will you be saving?
You already know that refinancing is probably going to cost you, so how do these costs stack up against any potential savings? Maybe your new lender is offering a cashback deal that could help to sweeten the refinancing deal. Or perhaps the interest rate on offer is just too good to pass up. Whatever the figures are, it’s important to make sure the numbers work out that you’ll be saving more than you spend by refinancing.
At Unloan, we’re making refinancing easy. Enjoy one simple low rate, annual discounts and zero fees when you set up a home loan with Unloan. Use our savings calculator to work out exactly how much you could be saving when you refinance with us. Check out your eligibility or learn more about our simple six-step application process today.
This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.
Credit Savvy is a trademark of CBA New Digital Businesses Pty Ltd. CBA New Digital Businesses is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124, Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000 Australia.
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