Another reason to refinance your home loan might be to consolidate your debts and only have one monthly repayment. If you have multiple debts from various sources or institutions such as a home loan, personal loan, credit card or other high interest loans, and you’re having trouble paying these off, then it could make sense to roll these debts together with your home loan. The main advantage here is that your home loan rate is typically a lower rate.
Some borrowers also want to refinance to use the equity in their home to pay for home improvements or other reasons. Keep in mind, while allowing you to expand your property portfolio or value, it will also greatly increase the loan term.
Qualifying for a loan
The general lending criteria are:
- You should have 5% – 10% in ‘genuine’ savings (genuine savings is defined differently by lenders but typically is defined as the funds that an applicant has saved themselves gradually over time. Generally speaking, lenders require at least 5% of savings in the applicant’s account over a three-month period prior to application.
- A good credit history.
- A healthy credit score.
- Stable employment.
Your living expenses and existing credit make a significant difference in how much you can borrow. You may need to reduce your discretionary spending in order to maximise how much you can borrow.
Most banks use 80% of rental income while some will use 100%
Banks assess PAYG salaries in the same way but apply different percentages for other types of income, including dividends, distributions, bonuses, self-employed add backs, overtime etc
Only some lenders will take the negative gearing benefit into account which can add a significant amount of additional borrowing.
In 2019, APRA changed the way banks needed to assess a borrower’s capacity to repay a loan. Lenders use different assessment rates and therefore off the same income, will lend different amounts.
Based on the above you will have noted that there are numerous items to consider and we highly recommend calling us to discuss your particular circumstances.
Find out if you qualify
Get in touch with Charter Finance today and let us chart this journey with you!