How to refinance in a declining market
With interest rates rising, it’s important to make sure your mortgage rate is still competitive – which is why so many Australians are refinancing right now.
However, refinancing can be more challenging when property prices are falling, as they are in many parts of the country.
That’s because your equity (or the debt-free share of your property) tends to fall during a declining market, which may cause one of two problems:
- If your equity is now lower than 20%, you may be asked to pay lenders mortgage insurance as part of the refinance – even if you’ve paid it before.
- If your equity is now lower than 10%, you will be limited with lenders willing to accept your refinance application.
That may seem unfair if you’ve been making all your home loan repayments on time. However, because refinancing technically involves applying for a new loan, lenders perform the same due diligence as they would for brand-new borrowers.
Get an expert on your side
That’s why it’s a good idea to get help from a mortgage broker, who understands the home loan market and lenders’ appetites. As your broker, I will:
- Advise you on whether you’re able to refinance and whether it would be suitable for you.
- Calculate how much equity you have in your home, so I can better understand your options.
- Use my knowledge of different lenders’ credit policies and interest rates to see which lenders could offer you a better deal than your current provider.
If you decide to proceed, I’ll manage your refinance application from start to finish, so the process goes as smoothly as possible.
Two options if you can’t refinance
If it turns out you don’t have enough equity to refinance, there are two options you may wish to consider.
First, I could ask your existing lender to reduce your rate. There would be no guarantee your lender would agree, but it doesn’t hurt to ask.
Second, if you had cash savings, you could use that money to pay off some of your mortgage ahead of schedule, thereby increasing your equity. However, this isn’t the right strategy for everyone, so it would be a good idea to speak to us to discuss first.
Why refinancing could be profitable
By refinancing to a suitable loan with a lower interest rate, you could potentially save tens of thousands of dollars over the life of your loan.
That’s why I strongly recommend you contact me today, to see if refinancing might be right for you.
Although refinancing may be a little more complex in a declining market, I’ve been helping other borrowers refinance, and I’d love to help you too.