So, now that you understand the benefits of refinancing and the potential pitfalls you may encounter, we need to look what else is required to get your refinance over the line.
Bonus Tip:
If you don’t know the benefits and pitfalls,
you can find them here and here!
When you team up with a skilled and trusted mortgage broker, they will complete their due diligence on your behalf and scour the land of lenders to source a lender that will be best to execute your strategy.
Each and every lender in the country will have their own unique set of rules and requirements, however all lenders will require two key ingredients: equity and cashflow
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- Banks Want to See Equity in Your Property! Typically when refinancing, lenders will not want to lend more than 80% of the value of the property. That means that if you have a property worth $1,000,000 the lender will want to limit your maximum borrowing that is secured by that property to $800,000. This is known as 80% LVR, or 80% Loan to Value Ratio. If, you current debt or the limit you are seeking is above $800,00 you will likely be up for lenders mortgage insurance. As I have mentioned before, this can get expensive and is only advisable under unique circumstances where the benefits of refinancing and paying lenders mortgage insurance outweigh any costs associated with the switch. If your current debt is less than 80% LVR, you could consider releasing equity for other purposes, such as a deposit on an investment property.
- Banks Want to See Strong Household Cashflow! Lenders, and myself to be honest, will always want to ensure that you do not borrow more than you can afford to repay. Banks are risk averse and despite bad publicity in the media, they really do not want to put anyone under mortgage stress or financial pressure. Coupled with the tightening in lending standards over the past couple of years, banks now employ a number of buffers in their servicing calculators to ensure that all borrowers can comfortably afford to make the repayments on their financial commitments. It is worth keeping in mind that lenders will calculate your cashflow post refinance, so if you have some personal loans or credit cards that are draining your cashflow, refinancing could be just the solution you need to get back on top of your finances. If you do have a strong cashflow and a consistent monthly surplus, you could consider utilising leverage to supercharge your wealth creation plans.
In short, in order to refinance your existing home loan, the banks will typically require you to have at least 20% equity in your property and a strong post-refinance household cashflow. Tick these two requirements off your list, and you are well on your way to utilising a refinance to achieve your financial and lifestyle goals.
Are you ready to push forward?
Best of luck!
Sam Panetta
PS – if you want any tips on refinancing, shoot me through an email! sam.panetta@aureusfinancial.com.au
