What does refinancing mean?
Refinancing your mortgage involves replacing your current mortgage with a new one, usually with a different bank and on different loan terms.
When you borrow money from a bank they will require security for the loan. When you sign a loan agreement with a bank, in the terms of that agreement you agree to give the bank a mortgage over your security property – this is the property you are borrowing against.
The bank will require the mortgage to be registered against the title of your property. The terms of the security agreement are recorded in a memorandum of mortgage which is recorded on the title of your property. Usually what this security agreement provides is that if you do not repay the loan extended to you by the bank, they will have the right to take possession of your property and sell it to recover the money that you owe them. A solicitor is required to register the mortgage.
If you want to switch banks, the new bank will also want a mortgage over your security property so the current bank will have to release their security in order for that to happen. The current bank will first require repayment of their loan – usually this is paid using the proceeds of the new loan from your new bank.
The legal process
This is where solicitors are involved. A solicitor will contact your current bank and request a discharge of mortgage and usually the bank will also provide a settlement statement showing the amount of money that needs to be repaid on the settlement date. The new bank will forward loan documents to the solicitor that you will need to sign and in those loan documents will be an agreement to give a new mortgage to the new bank.
On the settlement day the new bank will forward the funds to the solicitor’s trust account. The solicitor will then repay the existing loan, discharge the existing mortgage and register the new mortgage in favour of the new bank. This is a relatively straight forward process and can be undertaken quite quickly once you have approval for the loan from your new bank.
Why do people refinance
Usually this is to get a better deal from the new bank than you have with your existing bank – whether this is lower interest rates, a longer term so that repayments are reduce, to get a cash incentive from the new bank (who wants to win your business). This will depend on your unique circumstances, and you should check what other banks are offering and compare it with your own bank. You should also consider the possible costs involved in refinancing such as break fees if your existing loan is on a fixed term, valuation fees, bank fees from your existing lender and legal fees. A good mortgage adviser can help you decide if this is right for you.
Thinking of refinancing?
We offer a fixed fee for a simple refinance. If you are thinking of refinancing feel free to give us a call to discuss next steps.
