What Is Mortgage Refinancing?
Refinancing your home loan means switching from your current mortgage to a new one, either with your existing lender or a different one. People choose to refinance for various reasons - to access a lower interest rate, release equity in your property, consolidate debts into their mortgage, or switch between fixed and variable interest rate options.
If you're stuck on a high rate after your fixed rate period ending, or you simply want to improve cashflow through a loan review, understanding refinance eligibility requirements is your first step towards saving money refinancing.
Why Refinance Your Home Loan?
Before we dive into eligibility requirements, let's look at common reasons why Australians consider a refinance:
- Access a lower interest rate and potentially save thousands over the life of your loan
- Unlock equity to fund renovations, investments, or other major purchases
- Switch from variable to fixed interest rates (or vice versa) to suit changing circumstances
- Consolidate debts like car loans, personal loans, or credit cards into your mortgage
- Access features like an offset account or redraw facility that your current loan doesn't offer
- Move away from a lender whose service doesn't meet your expectations
Core Refinance Eligibility Requirements
When you submit a refinance application, lenders assess several key factors to determine whether they'll approve your home loan refinance.
Income and Employment
Lenders want to see stable, verifiable income. Whether you're employed full-time, part-time, self-employed, or receiving other forms of income, you'll need to prove you can comfortably service the new loan amount.
For employees, this typically means providing recent payslips and employment contracts. Self-employed borrowers usually need to show two years of tax returns and financial statements.
Credit History
Your credit score plays a significant role in the refinance process. Lenders review your credit file to assess how you've managed debts in the past. Late payments, defaults, or bankruptcy can impact your application.
If you're concerned about your credit history, consider requesting a copy of your credit report before starting the refinance process. This gives you time to address any issues or understand what lenders will see.
Property Valuation
Lenders conduct a property valuation to determine your home's current market value. This affects your loan-to-value ratio (LVR) - the percentage of your property's value that you're borrowing.
Most lenders prefer an LVR of 80% or less for refinancing. If your LVR is higher, you might need to pay Lenders Mortgage Insurance (LMI), which increases your costs.
For example, if your property is valued at $600,000 and you owe $480,000, your LVR is 80%. If property values in your area have increased since you bought, you might find you have more equity than expected, potentially allowing you to access equity for investment or other purposes.
Loan Servicing Ability
Lenders assess your borrowing capacity by looking at all your income and expenses. They want to ensure you can comfortably afford repayments, even if interest rates rise.
This assessment includes:
- Your regular income
- Existing debts and financial commitments
- Living expenses and household costs
- Dependents and other financial responsibilities
Current Loan Performance
How you've managed your existing mortgage matters. Lenders look favourably on borrowers who've consistently made repayments on time. If you've had difficulties making repayments or have been in arrears, this could affect your refinance eligibility.
Additional Factors That Affect Refinancing
Equity in Your Property
The more equity you have, the more attractive you are to lenders. If you're looking to do a cash out refinance to release equity to buy the next property or fund renovations, you'll need sufficient equity beyond what you're borrowing.
Fixed Rate Considerations
If you're currently on a fixed rate and considering coming off fixed rate early, be aware that break costs might apply. These fees can be substantial, so it's worth calculating whether the savings from refinancing outweigh the costs of exiting your fixed rate period ending early.
Documentation Requirements
Be prepared to provide comprehensive documentation during your refinance application:
- Proof of identity (driver's licence, passport)
- Income verification (payslips, tax returns, financial statements)
- Bank statements (typically 3-6 months)
- Current loan statements
- Proof of assets and liabilities
- Council rates and body corporate statements if applicable
When to Consider Refinancing
Timing can impact your refinance eligibility and the benefits you receive. Consider refinancing when:
- You're coming off a fixed rate and potentially facing higher rates
- Interest rates have dropped and you could lock in a lower rate
- Your financial situation has improved, potentially giving you access to more favourable terms
- You need to access equity in your property
- Your current loan lacks features that would improve your financial position
Common Refinancing Mistakes to Avoid
Many borrowers focus solely on accessing a lower interest rate without considering other factors. Remember to:
- Compare total loan costs, not just interest rates
- Factor in application fees, valuation costs, and potential discharge fees
- Consider whether you're paying too much interest due to loan features you don't use
- Review whether an offset account or redraw facility would reduce loan costs over time
- Understand that the lowest advertised rate might not be available based on your circumstances
How Mortgage Path Can Help
Refinancing eligibility requirements can vary significantly between lenders. What one lender declines, another might approve. This is where working with an experienced mortgage broker becomes valuable.
We conduct a thorough home loan health check to assess your current situation and refinancing goals. We then compare refinance rates and products across multiple lenders to find options that suit your circumstances.
Whether you're looking to move your mortgage to reduce costs, consolidate debt, or access equity, we'll guide you through each step of the refinance process and help you understand exactly what documentation and eligibility criteria apply to your situation.
Our service extends to clients throughout South Brisbane and across Australia, offering personalised support regardless of your location.
Ready to explore whether refinancing could help you save money or achieve your financial goals? Call one of our team or book an appointment at a time that works for you. We'll review your current loan, discuss your objectives, and provide clear guidance on your refinancing options.
