Realise your goals with home loan refinancing

There is no set timeframe you need to wait until you can refinance your home loan, however you should consider the following when evaluating if it’s the right time to refinance your loan:

• Why do you want to refinance? Is there a product you’ve seen that you think might better suit your situation, or have interest rates drastically changed? Has your financial situation changed? What fees might you need to outlay to refinance, and do they outweigh the benefits?  
• Read the terms of your current loans carefully (including break costs, interest rates, comparison rates, etc.) and weigh these up against the features of any refinance options you’re considering, including the loan term. Will your objectives be met?

If you're looking to refinance, you may be wondering if it will affect your credit score. It’s possible that your credit score may drop down initially after refinancing, but this may just last for a short period of time. In fact, your credit score has a chance to rebound and even improve in the longer term, especially if you pay your new monthly repayments on time.

There are several factors that can impact your credit score, including when a credit provider obtains a copy of your report during your credit application. Whilst each of the Australian credit reporting bodies calculate credit scores differently, making multiple applications within a short space of time can negatively affect your credit score. Find out more in our quick guide to understanding your credit report.

If you have a below-average credit score, then refinancing could still be an option for you. However, you may need to look to alternative lenders that take a holistic view of your financial situation. Non-bank lenders like us at Pepper Money specialise in providing loan options for people with credit history issues, and we can help you explore your options.

Even if you have a bad credit rating or a limited credit history, we may be able to help you reduce your interest rate and combine all your existing debts together into one easy to manage payment. It’s important to understand what factors have impacted your credit score in the past and ensure that you have a plan in-place to sort these issues out. Check out our tips on understanding your credit score.

To know the full costs, you need to look at the terms and conditions of each product – then you can compare them. So, the loan you currently have, compared to the one you’re considering refinancing to. Make sure you understand the fees and charges to both discharge an existing loan and to get a new mortgage, as they will differ from lender to lender and product to product. It’s important to also understand the terms and conditions, including any fees, applicable where you’re considering refinancing with your current lender to a different product. Before making any decisions, read the fine print to make sure your refinancing benefit isn’t being eaten up by fees or break costs.

Break costs or exit fees are additional costs that can be charged to a borrower when they switch home loans to a different lender or refinance with their existing lender. These fees are there to make sure that lenders are financially protected and can cover any costs if a loan is refinanced or switched to another lender during a fixed interest rate period. Different lenders may use different methods to calculate break costs, however it usually depends on how much of a locked-in rate period is remaining, how much of the loan amount has been paid off and the difference in cost of funds.

At Pepper Money, our fixed rate offering comes with no break costs, meaning you can gain the certainty of locking in your repayments for a set period of time, and should rates decrease in the future, you can refinance, or ‘break’ the loan during the fixed rate period without any penalties. 

Refinancing your home loan is the process of getting a new loan to replace an existing mortgage – this could be with the same lender through moving to a new product, or switching to a new mortgage with a different lender. While some may refinance their home loan to take advantage of a lower interest rate, others do so to consolidate their debts. Home loan refinancing could also help you access any equity built up in a property.

If interest rates have increased since you first took out your loan, refinancing to a lower interest rate could be a way to help reduce your monthly repayments. A lower interest rate could save you hundreds or even thousands of dollars over the life of the loan.                                      
Keen to learn more? Read our Simple Guide to Refinancing.

To apply for a home loan, you’ll need to provide documents to verify your identity, employment, and financial position. 

To prove your identity:

• Australian passport

or

• International passport showing a valid Australian permanent residency visa

To prove your deposit, you’ll need to provide the following (depending on where the funds originated from):

• 3 months’ bank statements demonstrating genuine savings 
• Share certificate or dividend statement for any public listed company
• Gift letters for non-repayable gifts from family
• Contract of sale or settlement statement for proceeds of a sale of another property

To prove your income:

For PAYG applicants you’ll need two recent payslips plus one of the following: 

• Most recent group certificate  
• Most recent notice of assessment  
• Current letter of employment 
• Bank statements - to confirm your last 3 months of salary 

For Self-Employed applicants, the required documents vary depending on how long you’ve been self-employed.

At least 6 months:

You’ll need to be able to show at least 6 months of GST and ABN registration and provide declaration of financial position, as well as one of the following: 6 months’ business bank statements, or 6 months’ BAS or Pepper Money accountant’s letter (not accepted if ABN registered for < 12 months, on loan sizes > $1.5m or on Plus).

Over 2 years:

Last 2 years’ tax returns and notices of assessments, or

Last 2 years’ financial statements executed by a registered tax agent or accountant

On some of our loan options, we offer finance up to 95% of the purchase price, meaning you can start to look at buying a house once you've saved at least 5% of the purchase price. The deposit amount needed may also depend on the property and area you’re looking at purchasing.

Remember, you’ll also need funds to be able to cover any loan fees, stamp duty and other government charges. These can’t be added to your home loan balance.

The interest rate offered, and fees and charges will depend on our assessment of a number of factors at the time of application including:

• The amount of your deposit or existing equity (if refinancing)
• Nature of the security property (or the property you have equity in if refinancing)
• Loan to value ratio (LVR)
• Your income
• Credit history
• Any assets you own
• Any liabilities or credit obligations
• Chosen repayment type – paying off interest-only, or principal and interest
• The purpose of the loan – if it’s for an owner-occupier or investment property

To get an indicative interest rateˇ, you can start by using our online borrowing power calculator, or speak to one of our Lending Specialists on 137 377.

You can consolidate a number of debts into your home loan – so long as the consolidation puts you in a better financial position. We can look to consolidate different types of debt into your new home loan, including credit cards, personal loans, car loans, private finance, tax and other personal or business debts. Before you get carried away consolidating all outstanding debts into your loan, check the features and limits of the loan product you’re looking at – as some competitive interest rate products may have limits on the number of debts that can be consolidated.

A few things in life are certain – and one of them is taxes. While stamp duty varies in each state or territory, it generally needs to be paid upfront and can’t be added to your loan balance. 

However, there are different schemes and grants in each state to support first home buyers – so it’s worthwhile checking if you qualify for any support: First Home Owner Grant

To get an estimate of how much stamp duty you might need to pay in each state in Australia, try our Stamp Duty Calculator.