Refinancing: Unlock the power of your home loan

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. 

When you refinance your home loan you go through the process of getting a new loan to replace an existing mortgage – this could be with the same lender through moving to a different product or switching to a new mortgage with a different lender. People do this for lots of reasons, some may refinance their home loan to take advantage of a lower interest rate, others might do so to lower monthly payments or to consolidate their debts. Refinancing can also be used to access any equity built up in a property.

To learn how to refinance a home loan, 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

When refinancing your home loan with us, we can finance up to 90% of the property’s value. This means you’ll need to maintain at least 10% equity or contribute an equivalent deposit to your loan.

Remember, you’ll also need funds to be able to cover any loan fees, as well as government and legal fees. 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.

Debt consolidation involves taking out a single loan to consolidate multiple debts, such as credit card debts, student loans, and other outstanding loans. It’s an option that could help you better manage your debts. By consolidating multiple debts into one loan, you can benefit from lower monthly payments, reduced, or eliminated late fees, and the convenience of having just one loan to manage. 

Consolidation loans are available from both banks and non-bank lenders, each will have different terms and conditions. Deciding the right lender for the right borrower will depend on their individual circumstances. It’s important to compare the costs and benefits of each loan provider and choose one that meets your needs.

Debt consolidation works by bringing all your existing debts together and rolling them into a single loan account, often with lower monthly repayments. But when considering debt consolidation, it’s important to understand the details of how it will work out for you and your situation.   

Consolidating your debts can lead to a lower interest rate than your existing individual debts, resulting in savings over the life of the loan. Ideally the debt consolidation loan will have lower monthly repayments than the amount being paid on the total debts currently owed. 

If you have equity in your home loan, you might be able to leverage it to consolidate other debts into your loan.  

One benefit of consolidating non-property debt into a home loan is that you can often get a lower interest rate. Because you will be putting your home up as collateral, lenders will usually offer lower interest rates than they would on other types of loans.

If you are looking to refinance your loan in Australia, you may need to pay stamp duty. This is generally a one-off fee charged by a State or Territory government on certain types of transactions. It is important to check with the relevant State or Territory Stamp Duty Office if stamp duty applies in your particular situation.

Refinancing a home loan with us is straightforward. You can apply online and complete the process in less than 20 minutes if you are an eligible customer with PAYG Income. Best yet, you’ll get your indicative interest rateˇ before you apply without impacting your credit score.    

If you're self-employed or just prefer to speak to one of our friendly Lending Specialists, then submit an online enquiry or call our team on 137 377.