Can you use a mortgage broker to refinance?
Yes, you can use a mortgage broker to refinance your home loan. Even though you’re a customer of a particular lender, you can engage the services of a broker to act on your behalf to help you find a better deal and refinance (switch) to another lender.
A mortgage broker will simultaneously help you deal with your existing lender and the one you’re refinancing to, ensuring the switch goes through smoothly.
Or, if you’re refinancing with the same lender, your broker can step in and negotiate for you and take care of any paperwork on your behalf. At the very least, they’ll save you from the pain of waiting on hold with your lender.
Recent data from the Mortgage & Finance Association of Australia (MFAA) shows that 70% of home loans are now written by mortgage brokers.
Is it worth using a mortgage broker to refinance?
Access to multiple lenders
A mortgage broker will do a detailed home loan comparison for you based on your needs. This saves you the time and effort of looking for a good refinance deal yourself, plus they may be able to access deals that aren’t publicly available.
Guidance and support
Refinancing can be an overwhelming process if you’re not sure what you’re doing. Brokers provide valuable advice and recommendations that help you understand complex terms and make better informed decisions.
Time and effort savings
Refinancing involves paperwork and legwork. A mortgage broker handles much of this for you. They understand how different lenders operate and will lodge your application for you. This can make a world of difference if you’re stretched for time.
Expert negotiators
Brokers can negotiate with lenders to get you better terms, which can result in lower rates and fees. This is particularly the case if you have a good credit score and a loan-to-value ratio (LVR) of 80% or less.
Avoiding potential pitfalls
Banks sometimes default to a 30-year term when refinancing, which can offset the benefits of a lower interest rate. A broker can help you avoid this trap by negotiating a more suitable loan term, keeping your repayments in line with your financial goals.
Refinancing scenarios where a broker can add value
You may be uncertain about whether to use a mortgage broker or handle it yourself. Here are some situations where working with a broker may be particularly valuable:
1
You’re first-time refinancers
If you used a broker for purchasing your first home and are considering refinancing yourself this time, it’s worth remembering that the process of refinancing is different to taking out a loan from scratch. After all, you’re now potentially dealing with two lenders – your current one and the one you’re switching to, with paperwork to take care of from each.
2
You need to maximise your property valuation
If you’re on the borderline of the next LVR bracket, like 72%, a broker can help you shop the valuation so you qualify for better rates. Lenders offer different interest rates based on the LVR tier you fall into. For instance, borrowers with an LVR of 70% usually get better rates than those with an LVR of 80%.
3
Your circumstances have changed
If your life has become more complicated – such as having kids or managing a busy schedule – using a broker can save you time and reduce stress.
4
You’re releasing equity
When refinancing to access equity, the process can be intricate. A broker can navigate these challenges and ensure you get the best terms and rates for your equity release.
5
You’re refinancing following a divorce or separation
Sometimes life throws you a curveball and you need to buy out a partner following a divorce. Expert advice here or in a similar situation can be a lifeline. A broker can help manage the financial intricacies involved.
6
Your credit score has dropped
If your credit score has dropped since you first took out a home loan, securing fair refinancing terms can be tough. Brokers can use their industry knowledge and comparison software to find specialist lenders willing to work with you despite your credit challenges.
7
You’ve recently started a business and your situation is now more complicated
If you’ve recently started your own business, proving your income and ability to repay the loan can be more complicated. A broker can assist in preparing the right documentation and finding lenders who are more flexible with self-employed borrowers.
Ask your mortgage broker to shop around with lenders for valuations of your property. See which loan providers will give you the highest valuation and the best rate according to your LVR. Don’t assume one bank’s appraisal of your property will be the highest.
Pros and cons of using a mortgage broker to refinance
Pros
- Typically doesn’t cost you anything to refinance through a mortgage broker
- Mortgage brokers handle most of the refinancing process from start to finish
- They may be able to negotiate a better deal and help you save on fees and costs
Cons
- Not all lenders work with mortgage brokers, and some brokers may not be authorised to work with certain lenders
- Top brokers are often very busy, so they might not be able to help with your refinance immediately
- It may take time to find a broker who’s a good match for your needs and goals
Mansour Soltani , Money's Home Loans Expert
“Your LVR plays a big role in getting a better refinance deal. A lower LVR often means better rates and terms because you’re viewed as less riskier to lenders. Simply put, the more equity you have in your home, the better your refinancing offer will likely be. For example, if your LVR is 71 or 72%, you want to get it down to 70% by either paying down your loan or shopping the valuation with a bunch of different lenders.”
Mansour Soltani , Money's Home Loans Expert
Is it better to refinance through a mortgage broker or direct with a lender?
Refinancing directly with your lender is of course an option given you already have a relationship with them. If you play your cards right you can potentially negotiate a better rate and terms. But this limits you to that lender’s products, which might not be as competitive as other refinance options available.
A mortgage broker, on the other hand, can show you a range of lenders and loan products, though they don’t have access to every lender.
They can also negotiate to reduce or waive certain fees, such as establishment fees. Brokers often have relationships with lender representatives, called “business development managers” (BDMs), which helps them negotiate better terms, whether you’re switching lenders or staying with the same one.
If you prefer a hands-on approach and feel confident about finding a good deal, refinancing on your own might work well. Doing your own research means you can potentially compare a broader selection of lenders in the market, not just the ones a broker compares. However, if you need help or have a complicated financial position, a mortgage broker can offer a lot of value.
How do brokers make money on a refinance home loan?
Mortgage brokers are usually paid a commission by the lender after your new loan has settled, so it shouldn’t cost you anything. However, there are some complex situations where you might need to pay an upfront fee, such as if you’re refinancing with low documentation (i.e. you have no payslips) or you’re purchasing property through a trust.
Mortgage brokers are required to let you know about any upfront fees and explain how they’re paid. This means you’ll learn about their payment structure during your initial consultation. Additionally, the lender will include a breakdown of any commissions in your refinance home loan approval documents.
