With interest rates now on the rise following a period of hibernation, borrowers are actively looking for the best deal by refinancing their mortgage. There is however more than meets they eye when refinancing, as it can potentially help you get on the right track with your finances in a number of different ways.
Here are some key strategies that mortgage refinancing can help you achieve.
Consolidate Debt
Aside from receiving a better deal, borrowers typically refinance to consolidate debts such as their mortgage, car loan, credit card or personal loan into one credit facility. It's important to note when consolidating debt, repayments are likely to be higher given you are bringing on board more debt to one facility creating a greater level of risk for the lender.
One strategy that can help you is to consult your lender about separating your personal debt from your mortgage. This way, you will still have the same interest rate, yet you will have separate statements and repayments. Think of this as a reminder that on top of your mortgage, you also have personal debts that you need to pay off.
Release Equity
In recent years, borrowers have tapped into the equity in their home for a whole host of reasons - to use the funds as a deposit on an investment property, renovate their home or upgrade the family car. If you are looking to refinance in order to access any existing equity in your property, the most important first step you must take is a property valuation. The reason a valuation is so important is because lenders will use the current value of your property to determine your loan-to-value ratio which will impact how much equity you have and how much additional money you will be able to borrow.
If your property has appreciated over the years, then you can expect that you will be able to maximise this strategy. It is going to be an entirely different story if the value of your property depreciated. Most lenders will allow you to increase your loan to 90% of the value of the property but anything above 80% will have mortgage insurance implications. The more equity you have, the better chance you will have at being approved.
For example:
Say you have a loan of $300,000 secured against a home worth $600,000. In this case your equity position remains strong at $300,000 meaning you should therefore have no trouble securing additional funds through refinancing.
However, if you have a loan of $450,000 lenders may be less inclined to increase your mortgage. Assuming your property is worth at $600,000 a conservative bank valuation might bring the value down to $550,000, leaving you with an equity position of $100,000.
It is important to understand your property worth by conducting your own research, analysing past sales in the area or chatting to a local real estate agent. It is best practice to be conservative in determining property value, working off the worst-case scenario to develop a realistic idea about how much equity you will be able to access.
Change lenders
A key rule of thumb as a borrower is to regularly check the market for a more competitive offer. With interest rates now on the rise, lenders are vying for competition more than ever before across both fixed and variable options, often offering sweeteners including cashback when refinancing. Banks and non-bank lenders increase and decrease their product rates at their own discretion, so a small rate differential shouldn't be enough to prompt you to switch. Before consulting other lenders, consider reaching out to your current lender to negotiate refinancing with a better mortgage rate.
Move from low documentation to full documentation
Lenders presently consider low documentation (low-doc) borrowers to be riskier propositions than full documentation (full-doc) borrowers. High risk loans often bear higher interest rates, therefore low-doc borrowers should carefully evaluate their mortgage and their financial situation. If you can prove stability in your job and your finances with a solid paper trail, you may be able to switch to a full-doc loan with your own lender.
You can move to a full documentation loan if you refinance to a lender and prove that your situation has already changed. If you can show your new lender that you are now in control of your finances, then you may be able to get a rate that is as competitive as others currently in the market. Make sure you speak with your lender to see whether you would be eligible for a full documentation or standard loan. If you are not eligible, find out what changes you need to make in order to achieve full documentation.
Compare interest rates for refinance home loans
Use our home loans refinancing table to find some of the best deals that are currently available in the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.69% p.a. | 6.16% p.a. | $2,319 | Principal & Interest | Fixed | $0 | $530 | 80% | Featured |
| Disclosure | |||||||||
5.99% p.a. | 5.90% p.a. | $2,396 | Principal & Interest | Variable | $0 | $0 | 80% |
| Disclosure | ||||||||||
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 90% | 4.6 STAR CUSTOMER RATINGS | Disclosure | ||||||||||
6.14% p.a. | 6.16% p.a. | $2,434 | Principal & Interest | Variable | $0 | $350 | 60% | Disclosure | |||||||||||
5.94% p.a. | 5.95% p.a. | $2,383 | Principal & Interest | Variable | $0 | $0 | 90% | ||||||||||||
5.99% p.a. | 6.51% p.a. | $2,396 | Principal & Interest | Variable | $0 | $530 | 90% | Disclosure | |||||||||||
6.09% p.a. | 6.22% p.a. | $2,421 | Principal & Interest | Variable | $10 | $500 | 80% | ||||||||||||
6.04% p.a. | 6.05% p.a. | $2,408 | Principal & Interest | Variable | $0 | $180 | 90% | ||||||||||||
6.09% p.a. | 6.11% p.a. | $2,421 | Principal & Interest | Variable | $0 | $210 | 80% | ||||||||||||
6.09% p.a. | 6.11% p.a. | $2,421 | Principal & Interest | Variable | $null | $null | 80% | ||||||||||||
6.09% p.a. | 6.14% p.a. | $2,421 | Principal & Interest | Variable | $0 | $150 | 90% | ||||||||||||
6.09% p.a. | 6.09% p.a. | $2,421 | Principal & Interest | Variable | $0 | $750 | 70% | ||||||||||||
6.04% p.a. | 6.07% p.a. | $2,408 | Principal & Interest | Variable | $0 | $350 | 60% | ||||||||||||
6.14% p.a. | 6.39% p.a. | $2,434 | Principal & Interest | Variable | $248 | $350 | 70% | Disclosure | |||||||||||
6.14% p.a. | 6.38% p.a. | $2,434 | Principal & Interest | Variable | $250 | $250 | 80% | ||||||||||||
6.44% p.a. | 6.66% p.a. | $2,513 | Principal & Interest | Variable | $0 | $0 | 97% | Disclosure | |||||||||||
6.59% p.a. | 6.59% p.a. | $2,552 | Principal & Interest | Variable | $0 | $160 | 70% | Disclosure | |||||||||||
6.79% p.a. | 6.87% p.a. | $2,605 | Principal & Interest | Variable | $8 | $350 | 70% | Disclosure |
This article was originally published in April 2014 and updated by Jacob Cocciolone June 2022.
Collections: Refinance home loans
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