Refinance

Refinancing home loans are designed for people who have an existing mortgage and want to switch to a different lender.

Why should you refinance your loan?

Refinancing for cheaper and better options

With cheaper interest rates and better loan features like an offset account, you can save some serious money and repay your mortgage faster.

Refinancing for debt consolidation

Refinancing to a debt consolidation loan involves reviewing your existing loans and debts and combining them into one.

You can consolidate debts like:

• Credit cards
• Personal overdrafts
• Car loans
• Personal loans

Case study： John looks to consolidate his debts

John has a mortgage and two credit cards and a car loan debts. He’s now finding he could barely make his repayments, his priority is to lower his payments and improve his cash flow right now.

With monthly repayments of $2,980, it’s easy to see why John’s having such a hard time making repayments. He then approached a mortgage broker to help him find refinance to consolidate his debts. A new lower interest rate loan at 2.89% p.a. was negotiated for John, paying off his debts of $390,780 with monthly repayments of $1,830.84 instead of his original $2,980.

However, the loan term was extended to up to 25 years which meant that he would be in debt for longer and eventually pay more interest over the loan term, unless he started making extra repayments towards his loan.

Refinance for equity release and wealth build

What is equity and how can I refinance to unlock equity?

When you’re refinancing, a bank will typically assess your current loan-to-value ratio (LVR) by looking at the value of your home minus what you owe on it. It will then generally lend enough to bring your total LVR up to 80%.

For example, in a situation above, you could access equity as below:

$500,000 x 80% – $200,000 = $200,000.

Why would I refinance to unlock equity?

One of the most common reasons to unlock equity is to use it to invest. This could mean investing in any number of asset classes, including property, shares.

If you were the owner-occupier in the situation above and you refinanced your home loan to unlock equity, you now have a healthy deposit to purchase an investment property. Or, you could choose to invest in another asset class such as shares. If it’s likely that the asset you invest in will generate higher returns than the interest you pay on the amount you borrow, it could be a savvy move to refinance in order to unlock equity.

Alternatively, you could choose to use your equity to renovate your home. A well-planned renovation could add value to your home that outweighs the expense of accessing your equity.

Refinancing to unlock equity in order to invest could also deliver tax benefits. If you choose to invest in assets such as an investment property or shares, you could take advantage of negative gearing concessions. Moreover, if you choose to invest in property you can deduct the interest on your home loan repayments.

If you choose to use your equity to renovate, you may be able to claim depreciation benefits on the improvements you make. Regardless of which path you choose, it might be wise to speak to a financial adviser or tax professional to sort through your option.