12 Golden Rules for Buying Your First Investment Property

Purchasing an investment property can be a daunting task arguably even more so than buying your first home. There are multiple factors to consider and numbers to crunch before pulling the trigger.

Luckily, we’ve put together a list of the 12 golden rules for buying your first investment property, so you can navigate the property investment market armed with everything you need to know.

1. Have you set a budget within your means?

When budgeting for your investment, remember that the costs go far beyond covering the repayments

Upfront costs

Ongoing costs

2. Review your credit history

Before beginning the application for any loan, a quick and easy credit score check is an essential step. Sneaky debt or late payments could potentially affect how much you can borrow or if you are approved at all. 

Unfortunately, having a loan application rejected can further diminish your credit score, so it’s important to understand your rating and its effects on your borrowing power before applying.

3. Decide on a suburb

The suburb in which you choose to buy a property can make or break your investment. The wrong suburb will have you struggling to find renters and missing out on vital rental income; the right suburb will allow you to have your pick of renters who will supply rental income from day dot.

Research your desired properties on real estate sites to ensure you are getting market value, determine average rental returns and vacancy rates, and check to see if there are any upcoming developments nearby that could impact prices.

Remember to pick suburbs with good amenities, close to public transport, schools and shopping centres, to ensure you’ll see price growth in the years to come.

4. Decide what you want to purchase a house or unit?

What you buy can impact your capital gains as much as where you buy. Whether you choose a house or a unit, it ultimately comes down to which will be the easiest to rent and still have growth potential.

Houses are harder to rent but offer more capital growth. On the other hand, units are easier to fill due to their affordability and proximity to amenities. When deciding between the two, determine your investment goals and budget and whether you prefer higher long-term growth over steady rental income.

Houses and units also vary in maintenance and ownership costs. Houses are generally more expensive to maintain, but units often come with costly quarterly strata. Although, purchasing a house will also leave you saddled with council rates and land tax. 

5. Decide who will manage the property?

Self-managing your investment property may seem like an easy way to save money, but there are multiple obligations involved:

If you would prefer to leave it up to the professionals, you can expect to pay an estimated 7%-10% of the rental income in management fees.

Make sure you do your research and compare agents to get a quality service at a reasonable rate.

6. Pick the right type of mortgage for your situation

Choosing the mortgage for your investment property is a vital part of the process and could lead to some substantial savings. Whether you choose a fix-rated, variable rate, interest-only or principal and interest loan will depend entirely on your financial situation and goals.

For an investment property, structuring your loan is a critical component to maximise your taxation benefits. It’s advisable to speak to a Mortgage Expert to put you on the right path. 

7. Understand your legal obligations

Becoming a landlord is a big responsibility that involves several legal obligations before, during and after a tenancy, which will depend on your state or territory.

To ensure you are prepared to take on this legal undertaking, please check the Fair Trading website where your property is based. 

8. Can you use the equity from another property?

Using equity from another property as a deposit for your investment property is an excellent way to avoid handing over a 10-20% deposit.

Having equity in a property is not a guarantee you can use it to purchase an investment property. Banks will look into multiple factors: age, income, dependents and additional debts to decide if you are eligible.

It’s advisable not to use all of your available equity to purchase your investment property, allowing yourself a buffer for any additional costs you might incur. 

9. Check the age and condition of the property and facilities

An investment property is the largest investment you’re likely to make, so it’s vital to ensure it’s a sound one. Carrying out building and pest inspections by licensed professionals will help prevent any nasty, major repairs down the road. Of course, a property doesn’t have to be in flawless condition, as small renovations are a great way to add value to your property. 

10. Have you investigated potential tax deductions?

A variety of the costs involved in owning an investment property can be claimed as a tax deduction. Of course, interest payments are the most attractive deduction, but there are many more potential deductible costs, including:

11. Are you across other tax implications?

There are a number of tax implications associated with investment properties that could potentially provide considerable savings or spendings. 

Whether your loan is negatively or positively geared will determine how much you are taxed on your investment earnings.
 
For a property to be negatively geared, the interest and other fees must be more than the property’s income overall. If your investment property income amounts to more than the interest and associated fees, then your property is positively geared. 

A negatively geared property can reduce the amount of tax paid on your yearly salary, where a positively geared property will mean paying tax on the net income your property makes, on top of your annual salary.

Although it might not be relevant for some time, you will need to pay capital gains tax on the profit you make when you sell your property.

If you sell your house within one year of purchase, you will only need to pay capital gains on 50% of your profit instead of the usual 100%. 

12. Make the property attractive to renters

Be a good investor and a good landlord by making your property attractive to renters. Give your tenants a blank space to make their own by sticking to a neutral colour palate.

Think about whether you would want to live in the property and if the amenities and condition are up to your standards, after all, someone will be making a home in your property. 

Ultimately, by keeping your property in good condition, you will likely attract better quality applicants who will take care of your investment. 

Interested in purchasing an investment property? Talk to us about your refinancing options and how you could unlock potential your home equity.

Banks are currently offering historically competitive fixed interest loans, some of which are below 2%.

The rise of variable rates and shrinking fixed rates is due to the RBA’s bond-buying program and recent rate cuts.

Experts say that the record low fixed rates are a once in a lifetime opportunity that could help whittle down mortgage debt.

Speaking with Domain.com.au Property Planning Australia managing director David Johnson said, “I’ve never seen a better time where it makes more sense to fix a large chunk of your debt than right now”.

“We may never see fixed rates this low again”, he said.


How have low fixed rates encouraged people to commit to a home loan?

According to Research Director at Ratecity.com.au Sally Tindall, the move is intended to encourage would-be homeowners to enter the booming property market.

Speaking to the Sydney Morning Herald, Canstar Chief Executive Steve Mickenbecker said the historically low fixed rates are encouraging people to commit to a home loan, locking in savings and repayments.


Who is eligible for the record low fixed interest rate loans?


Not everyone is eligible for the low rates being offered on fixed-rate home loans.

Westpac commenced one of the most competitive fixed rates on the market in early March 2021, but only for a particular customer.

Talking to Nine News, Miss Tindall said that the Westpac Group, in particular, is reserving these loans for customers looking to refinance who own more than 30% of their home.

“If you’ve had your home loan for a few years, you might find you have more equity than you think and qualify for one of these low-rate loans”, she said.


What are the benefits of a fixed-rate loan?


The main benefit of locking into a fixed rate is stability.

According to Yourmortgage.com.au, depending on your current interest rate and lender, taking advantage of the record low-interest rates could potentially lower your repayments.

Fixing your rate in times of financial uncertainty, such as a global pandemic, would potentially allow you to maintain your low-interest rate if the RBA were to raise rates in the near future.

However historically low a fixed rate is, there are some potential backs of a fixed-rate loan.

What are some of the drawbacks?

Fixed-rate loans have some potential long and short-term disadvantages.

According to David Johnston, fixed-rate loans don’t offer the same repayment flexibility variable rates do.

“A lot of fixed-rate loans don’t have an offset, and a lot of them don’t have redraw,” he said.

“If you inherit $50,000, you might not be able to reduce your loan by that much,” he said.

To overcome this drawback, Mr Johnston suggests fixing just a portion of your home loan and leaving the rest variable, which will allow for changes in financial circumstances and extra repayments.

What will happen if fixed rates go down further?

There is a possibility that current rates will fall even further, and according to Mr Johnston, this could create risks for mortgage-holders.

“If the economy doesn’t recover and actually gets worse, and we have to go more into quantitative easing and negative rates, if you need to sell or refinance, there are exit costs,” he said.

“If funding costs fall during the fixed term, break costs can be significant. The more interest rates fall, the higher break costs will be,” he said.

Fortunately for fixed-rate mortgage holders, rates are not expected to fall much further.

What are the big 4 banks recommending for customers?



Following the trend set by Westpac, all of the Big 4 banks, bar ANZ, are offering fixed rates under 2% – although ANZ’s lowest fixed rate is only slightly above 2%.

According to the rate cute announcement from NAB, the big banks are encouraging both new and existing customers to take advantage of their current fixed rates, with existing eligible customers being told to expect a quick change to the new fixed rates.

NAB Executive Home Ownership Andy Kerry said, “NAB customers on a variable rate can quickly and easily switch to a fixed rate in our app, with hundreds of our customers taking this option every week.”

The Big 4 are also streamlining and reducing their loan processing times to support the mortgage boom spurred by the record-low interest rates.

What are non-major lenders currently offering?


Australia’s non-major lenders are coming to the table, offering fixed rates to compete with the major lenders.

Bank of Queensland, Macquarie Bank and Suncorp are all offering rates hovering around and below 2%.

Talking to Savings.com.au, AFG Chief Executive David Bailey said that borrowers are flocking to non-major lenders.

“The major lenders’ market share dropped from 66.8% at the end of the 2020 financial year, the highest level since 2017, down to 58.9% at the close of Q1,” he said.

Words by Nell Matzen

Sources

Westpac offers lowest two-year fixed rate home loan on the market

Advantages and disadvantages to a fixed rate

You may never get a better deal on fixed-rate mortgages

Fixed mortgage rates are at record lows, so is it time to consider fixing your home loan? We asked the experts

NAB lowers fixed home loan rates

Get in touch if you are looking to apply for the scheme or if you’re unsure about your eligibility. Our home loan professionals can help you understand your options if you think a renovation could be in your future. 

Are you tossing up buying a holiday home and if it could possibly make a good investment? Are you thinking with your head for the purchase or with your heart?

According to data from the Australian Bureau of Statistics, during the 2017-18 financial year period, one in five (20%) of Australian households owned a residential property other than their usual residence.

The problem at times with investing in a holiday home is that while people may fall in love with the idea of the lifestyle, they might not think it through. For example, they might make incorrect assumptions about the ‘free’ holidays they could be able to take or the income they may be able to generate.

There are a few things to consider before looking into purchasing a holiday home, and it is important to thoroughly consider the pros and cons to help avoid making an impulse buy. Purchasing a holiday home can be great, but only if it fits your financial situation and long-term goals.

To help you get started, we have listed some of the main pros and cons of holiday homes.


Pros of buying a holiday home

Here’s a breakdown of all the possible advantages of buying a holiday home.

Rent-free holidays for you and/or friends whenever you want, for however long you want.

First off, one of the best pros of buying a holiday home is having a rent-free holiday pad for yourself and your family/friends. There is no time limit on how long you need to stay there, and you can go there for a spontaneous weekend holiday, or for a week or even a month! Anything goes when you own it for yourself. This also means you don’t need to pay those pesky holiday rental loading fees during school holidays as well!

Potential profit costs from renting out to tenants and possible appreciation in value.

Another benefit of buying a holiday home is the potential profit you might make if you decide to rent it out to a tenant whilst you are not there. The rental income could hopefully also offset the things you do need to pay like maintenance costs, mortgage, insurance and council costs. Your holiday home could also possibly appreciate in value over the years, increasing the overall net worth of your investment.

Possible place to live after retirement.

It could possibly be an ideal location to make your permanent residence after you retire.

Aerial view holiday houses in Mount Martha Victoria

You can leave anything you want, ranging from toys to household items.

You can potentially set up your holiday home and leave it exactly the way you want it. You wouldn’t need to pack all the extra toys or potential appliances since you can leave them there!

There could be tax advantages for you.

Property can be great when it comes to tax benefits. There are many tax deductions you could claim on your holiday home. For rental properties, tax-deductible expenses could include:

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Cons of buying a holiday home  

Here’s a breakdown of all the possible disadvantages of buying a holiday home.

Holding costs should be considered, especially if you can’t find a tenant.

One of the most important things to consider is the holding costs of your holiday home. If you can’t find a tenant, then you will be paying the mortgage, insurance, maintenance fees and more out of your own bank account instead of offsetting with the rental income.

You may also need to consider rates, management and cleaning fees, cost of improvements, the cost of providing linen and towels (if renting) and the cost of keeping the garden maintained.

It could also be difficult to find a tenant outside the holiday period, probably the period you want to visit your holiday home –  so you will have to figure out the balance between tenant use and personal use.

Damage or vandalism can go unchecked for months, and can worsen dramatically if left for too long.

The issue with your holiday home is that you won’t be there that often, which means you will only check on it a few times a year. Unless you have a cleaner or security system in place, any damages or vandalism may go unnoticed till months later, which can sometimes cause further complications.

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You can potentially get bored of going to the same place every time you go on holiday.

The one that sometimes gets overlooked, is the fact that you might get bored of going to the same place year in year out and might not even appeal to you to retire there down the track. You might feel constrained with using your holiday home and force yourself to visit when you really don’t want to.

Risk that the property may not increase in value sufficiently to offset the costs.

Another issue that might arise is that your property may not appreciate in value. If you haven’t purchased your holiday home in a prime location, the reality is that the area might not be valued by the property market and furthermore tenants. A prime location could mean beach views, restaurants, cafes, shopping centres and tourist hotspots nearby.

You could have a bad tenant which could cause damage, stress and legal fees.

One realistic negative aspect is renting out your holiday home to a tenant that has no respect for your home. Not only can these tenants impact your cash flow if they don’t pay their rent on time (or at all), but the stress of these tenants can be intense and emotional. If they cause any damages or you need to evict them, the out-of-pocket costs could all add up, including paying for any repairs or legal action to evict them.

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Words by Ece Demir

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Are you on the lookout to save more on your home loan? Take advantage of low rates. Contact us for help working out your home loan options.

After what the year 2020 has thrown at us, many Australians in 2021 are looking for better ways to save and be more financially comfortable.

Cutting down your monthly expenses can be easier than it seems and knowing how to handle your monthly expenses is essential if you want to save money. There are many ways that you might be able to cut back on expenses and save money, and it starts off with raising awareness about your spending patterns.

We’ve come up with 10 easy ways you could cut down your monthly living costs and help you save some extra money.


1. Know what you’re spending, write it all down.

First, you need to see where your money is going because if you don’t know where your money is going you won’t know where to cut down costs. This step goes in hand with creating your budget of monthly costs. Leave no stone unturned; check your bank statements, credit card statements, bring up all bills and receipts whatever possible way to track your expenses. Be mindful to have a rough 3 – 6 month estimation of your budget and expenses to gain full transparency with your costs.

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2. Get on top of any debt and if there is debt, consolidate it.

Credit cards can act as a giant hurdle when trying to save money and having multiple debts with all different interest rates can cause damage to your bank account. If you have multiple loans or credit cards, refinancing them all together could reduce individual fees associated with each of your debts. It can also be easier to keep a track of debt if it’s all in one place.

woman looking at credit card

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3. Shop for groceries once a week, with a list and at the store.

One of the best ways to cut down on expenses is to know what you need from the store from knowing what is already at home and organising your meals for the week. Doing one large grocery shop for the whole week, rather than multiple short trips, can help eliminate those impulse buys, takeaway and even wastage. By writing up a weekly menu, it will save you some money as you know what ingredients you need to buy and prevents those overbuying habits with take out. This goes hand in hand with your shopping list as if you don’t have one, you can make those unnecessary purchases, which ultimately means less in your savings account.

4. Conserve your energy bills.

On average Australians spend $1700 a year on electricity, according to an article by Home To Love, so this means there is plenty of room to save some extra money. If you live in an area where you have the option to choose from different providers, do some research and comparisons to see if you are indeed getting the best deal. If you’re not, you may be able to save by switching providers.

5. Turn off appliances, ditch the second fridge and more.

Turning off appliances at the power outlet when not in use can reduce your energy bill by up to 10%. Another method you should consider is to ditch the second fridge, as it can add an extra $172 to your annual power bill – even more if it’s an older model, according to Homes To Love. You could also set your air conditioner to dry mode; this can potentially reduce halve the cost of running your air conditioner. Regularly cleaning the filters can also help keep your air conditioner run efficiently.

6. Research and review your health insurance.

Health insurance is one of the biggest expenses you can have. You should check up on your health insurance cover and possibly reduce your premiums by dropping unnecessary covers, such as pregnancy if you’re not planning on children soon. Another way can be by reducing your excess only if you consider yourself to be in a position to cover the extra payment, or even if you find another health fund that will benefit your needs and save you more money.

7. Shop around for your car insurance, take advantage of deals.

The cost of comprehensive car insurance policies can vary drastically between different car insurance providers. Some insurers offer discounts and deals which could benefit you to check and see if you should change your insurer.

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8. Make sure your savings account is getting the best interest rate.

Some savings accounts have very good interest rates, and some don’t. If you want to maximise your savings account make sure you are getting the best possible rate and if this means potentially moving banks, you might want to consider it. Some banks also have ‘bonus’ interest incentives, where if you meet a certain criterion you will receive extra interest.

9. Buy home brand products.

Whether it is food or condiments, washing detergent or dishwasher liquid, antibacterial sprays, choosing the unbranded products at your local supermarket will most likely save you some extra money that will add up over time. Usually, these products compared to the branded have very similar almost identical ingredients with just a few differences. It is worth trying unbranded products as you might enjoy some things better.

10. Use public transport, cycle or walk.

Using your car can cost dramatically more than other transport options. On top of your weekly or fortnightly petrol payments, you have your car registration, the car servicing every 10,000kms, your car insurance and if you cause an accident you have the extra excess. If you live in an area where public transport is close and safe you should consider it. Sometimes, it is more time efficient as well during peak hour traffic.

Try talking to your providers or banks if you are in financial hardships. Most providers care for your needs and will try to help you as much as they can. If you ever need any further assistance or are in financial strife, you can consider free financial counselling services. The Financial Counselling Australia website has a ‘Find a financial counsellor’ tool that can help you find financial counsellors around Australia.

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Words by Ece Demir

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Has your lender made the cut? Take advantage of low rates, we can help organise your refinancing or a pre-approval!

Retiring without mortgage debt was once almost a given for Australians, and while economic data shows Australia’s current crop of retirees are at least as well off if not better than previous generations, retiring with a mortgage is increasingly common.  

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Public policy thinktank the Grattan Institute predicts that by 2056, if current retirement conditions prevail, the percentage of retirees who own their homes outright will have fallen to 66% from 80% in 2019.

With a growing number of people still having to pay off a mortgage in retirement, the question as to whether it’s possible to refinance that is replacing an old loan with a new, better loan to save money naturally arises.

While older Australians could be perceived as risky by some lenders, the answer is yes, it’s possible to refinance a mortgage if you’re retired.

As is the case at any stage of life, refinancing in retirement involves taking out a new loan to repay an existing loan, either with the same lender or an entirely different one.

The main reason is to save money by switching to a loan with a lower interest rate, but it could also help consolidate debt. Borrowers could save money by rolling higher rate debts from something like a credit card into a mortgage with a lower-rate. There are different fees associated with refinancing.

The first step for older Australians should be to speak with their current lender and ask for a more competitive deal, but for those looking to refinance, here’s a breakdown of what to consider.

1. Refinancing after the age of 55

Refinancing your mortgage is technically possible at any time during the life of the loan, but it’s true that lenders consider people close to retirement a greater risk.

While how potential lenders approach this demographic varies widely, most will more than likely assess your financial situation very closely.

Before moving on, it could be a helpful to sit down and work out your financial goals first, then possibly with the help of a mortgage broker or financial advisor, come up with a plan to work towards them.

Refinancing your mortgage in this case could be one step in helping you better approach your debts and savings as you enter retirement.

2. How could you repay your mortgage when you’re retired?

Retirement for most people brings with it a significant drop in income. In cases where people still have to pay mortgages after they retire, income from such sources as superannuation, shares, investment properties or the pension could still be used to pay down debt.

Individual situations vary widely of course, which is why it’s important to carefully assess your finances before making any choices with regard to refinancing.

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3. Should you refinance your mortgage before retirement?

If you do decide to refinance, starting before you retire could offer a number of advantages.

While you still have an income, potential lenders should look at you as a lesser risk than if you wait until after you retired.

One of the main reasons to refinance before you retire is to reduce your repayments so you’re able to afford them once you do leave work.

You could approach your current lender to ask for a more competitive interest rate or shop around for a lower rate or better conditions from another lender, so you could reduce your repayments or add the flexibility you need in the loan.

Remember though, there are costs involved with swapping lenders and these could vary between vendors.

You may also be able to increase the term of your loan, so your monthly payments are reduced to a level you could afford in retirement. Keep in mind just how long you will be paying the mortgage off for in this case though.

4. Can you refinance your mortgage after you retire?

If you’re already retired, refinancing is an option, but lenders could look at you as a greater risk. It could be a suitable idea to carefully assess your financial situation first, then get some advice from a mortgage broker or financial planner to discuss your best options.

If you’re still receiving a consistent income through shares or an investment property, you could have more options available to you.

If you’re finding you’re having trouble meeting your current repayments, refinancing could be a suitable option by shifting to a mortgage with a lower interest rate.

Or if you have high repayments on other types of debt, credit cards, for example, you could save money by consolidating your debt into a mortgage, which generally has lower interest rates.

5. What is downsizing and how could it help retirees?

One way you could reduce or eliminate your debt is to move into a smaller or less expensive property.

If refinancing in your current home is not the best option, moving to a property with a smaller mortgage and less upkeep could be an alternative.

As with any decision, there are a number of factors to consider. Will the move mean you’re better off financially? There are costs involved in selling your property and you also should ensure your new property could involve lower costs after you move in.

A new property may also better suit your lifestyle once you retire, as many people have found moving to regional areas from the cities after they finish work. Regional properties could also mean lower associated costs when compared with city properties.

6. How to pay off your mortgage before retirement

If you’ve decided to look at refinancing or lowering your costs as you approach retirement, here are some of the steps you could take to get you on the road.

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1. Negotiate with your lender for a lower interest rate

You could avoid all the costs and work involved with refinancing by simply asking your mortgage provider for a lower rate.

Processes vary widely across financial institutions, but many should be open to discussing this with you, as they would generally prefer to keep your business.

You could present a strong case if you have consistently made your mortgage payments for an extended period. Having a good credit rating and savings record could also strengthen your argument.

2. Refinance your home loan depending on your situation

One of the strongest reasons for refinancing is to shift to a more competitive rate to lower your costs. This is where it’s important to ensure you have calculated all the costs involved in shifting loans.

Some lenders could waive some transition fees if you stay with them for your updated loan, other lenders may waive fees if you’re moving to them, but it’s important you know all the costs involved once you have found a product you think you like, then calculate if the benefits outweigh the cost of moving. It has to be worth your while!

Another reason you might switch loans is for more flexible or suitable conditions. Again, ensure you have carefully considered the costs and benefits and be prepared to accept that refinancing may not be the best option.

It could be a helpful idea to discuss your needs with a financial planner or mortgage broker to help with your decisions.

3. Speak to a broker on how you could restructure your home loan

There are a multitude of loan products, involving different interest rates and conditions, so it could be a help to discuss your individual situation with a mortgage broker to find out if there are any that help you towards your financial goals.

Brokers may also be able to advise how to best argue your case for a lower rate with your current provider or find a new product that could save you in the long term, taking into account the costs of transitioning.

4. Speak to a financial advisor

A financial planner or advisor could be a good start in helping you determine whether refinancing is the best way forward for your situation.

Taking your personal circumstances into account, an advisor may also be able to help you make the best use of your superannuation and help with structuring your tax affairs as you enter retirement.

5. Create a financial plan to achieve your goals

Before moving on with any financial decisions, it could be a good idea to clarify your financial goals first. Consider whether you want to maximise your savings or restructure your debt to a more comfortable level.

Once you know what direction you want to go, creating a financial plan could give you a solid base from which to get to your goals. A good process is to not only consider where you want to end up, but also what milestones you should achieve along the way.

If you’re refinancing at 55, what should your financial situation look like in a year or when you’re 60 or 65? This is where a financial planner and mortgage broker could help, but even if you’re not quite ready to talk with them, considering these factors and planning for your financial future should still be a very useful exercise.

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Words by Erin Delahunty

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Has your lender made the cut? Take advantage of when lenders start dropping their rates, we can help organise your refinancing or a pre-approval!

When was the last time you compared your home loan rate to others on the market? If you can’t remember, chances are it’s time to have another look.

Over recent years, interest rates have experienced a tail-spin dive. And while borrowers with eyes skyward’ have been reaping the rewards through refinancing or switching to lower rates, others have been more complacent.

A model house with calculator and coins representing the savings to be made through refinancing.

According to RBA figures, in July 2019 the average interest rate on a new owner-occupier variable rate home loan was 3.50% p.a. Now, just over 18-months on, the average interest rate on this loan type is 2.80% p.a.

As highlighted in the Australian Competition and Consumer Commission’s (ACCC) recent inquiry into home loan pricing, borrowers could stand to save thousands through refinancing to a lower rate.

the average interest rate paid across home loans (owner-occupier and investor) originated in 2019 was around 40 basis points lower than the average interest rate for home loans originated in 2015 or earlier, the report stated.

To put this difference into perspective, it means a borrower with a $250,000 home loan would pay about $1,000 in extra interest over one year.

ACCC Chair Rod Sims said the savings could be substantial for those who investigate switching.

A significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so, he said.

1. Who should consider refinancing their home loan?

Borrowers come from all walks of life and choose to refinance or switch their home loan for a variety of reasons. Here are some of the common ones:

1. Your home loan is over three-years old

The ACCC’s recent inquiry into home loan pricing found that borrowers with old home loans tend to pay more in interest than those with a newer home loan.

In its final report the watchdog noted that in September 2020, borrowers with home loans between three and five years old paid an average 58 basis points more in interest compared to borrowers with newer loans.

If you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates, ACCC Chair Rod Sims said.

2. You want to save money in repayments

If you are looking to cut costs, refinancing is a worthwhile consideration. While not beneficial for everyone, if you are eligible for a more competitive loan product it can significantly reduce expenses.

Refinancing however, may not be beneficial if the cost to break your current home loan outweighs the cost-benefit, or if your current loan product is already competitive.

3. Your home loan interest rate starts with a three’

If your home loan interest rate begins with a 3′ or higher, it could be a sign that your current home loan isn’t competitive to what else is on the market.

4. You have outgrown your current home loan features

Although useful, home loan extra features can have different degrees of usefulness, depending on the circumstances and needs of the borrower.

For example, while some might find an offset account highly beneficial and in line with their goals, others may find it a waste of time. Since this feature often comes with a price premium, in this case it could be worth looking at other products.

5. You want extra funds to renovate

If lockdown restrictions too made you start looking at your home differently, refinancing could give you those extra funds needed to renovate.

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2. My interest rate is too high what should I do?

If you have compared your home loan to what else is on the market and found your interest rate is too high, you have a few options.

The first is to consider asking your lender for a lower rate. If your lender agrees to a suitable figure, this can allow you to lower your interest rate without needing to switch home loan providers.

If asking your current lender for a reduction isn’t a feasible option, borrowers can also investigate refinancing or switching. This involves looking at what else is on the market and moving to a different product and lender.

You might also like: 6 Key Home Loan Refinancing Questions Answered

3. Should I consider switching to a variable or fixed rate?

Choosing between a variable or fixed-rate mortgage is a personal decision and should be made based on the individual circumstances of the borrower. There are, however, a few generalisations that can be made to potentially help guide the decision.

Benefits of a fixed-rate:

Benefits of a variable rate:

4. What are the costs of breaking my current loan to refinance?

Costs associated with breaking your current loan to refinance can vary. Every lender has different criteria and cost, so the terms of your loan should be checked for a precise answer.

According to Canstar, it can cost an average of $750 or more to refinance a mortgage. This, however, should be compared the benefit of any potential savings.

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5. How long does it usually take to refinance?

There is no standardised length of time a refinance should take; however, the process usually takes between two to four weeks.

The process generally involves a variety of steps and is not entirely dissimilar to the process of applying for your current loan.

Generally, it will involve selecting and applying for the new loan, including completing any necessary paperwork or in some cases, getting a new property valuation; completing a Discharge Authority form with your current lender and once its all approved, paying out your current lender.

Words by Kathryn Lee

Sources:

Has your lender made the cut? Take advantage of when lenders start dropping their rates, we can help organise your refinancing or a pre-approval!

Unless your head’s been stuck under a rock the past two years, it would have been hard not to notice the dramatic drop interest rates have experienced of late.


Just over 18 months ago, the average interest rate on a new owner-occupier variable rate home loan was 3.50% p.a. Now, according to Reserve Bank (RBA) figures, the average interest rate on the same loan type is 2.80% p.a.

For many, this drop has inspired decisions to refinance. Others, however, have been more apprehensive.

Like anything new, the refinancing process can be daunting at first. From apprehension surrounding the research involved to fear over the paperwork, it’s no wonder so many borrowers put it off.

But it doesn’t need to be this way. Refinancing often isn’t as much effort as it sounds, especially if you know what to expect.

So, to help you on your journey we’ve listed the key documents and other information you’ll likely need to gather to get the refinancing ball rolling.

You might also like: 6 Key Home Loan Refinancing Questions Answered

1. Personal Information and ID

Lenders have a legal requirement to prove that you are indeed who you claim to be. To do this, you will need to provide them with personal paperwork and ID. This could include your:

If you are applying to refinance with the same lender, all these documents may not be necessary since they will already have your personal information on file. However, it never hurts to check that all your personal paperwork is in order.

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2. Proof of Income

Just like when you applied for your original home loan, you will need to prove your ability to service the home loan to the new lender. This will also help the lender decide how much you can pay back each fortnight in repayments.

Depending on your work type there are different ways to prove income, as outlined below. If you are applying for the loan with another applicant, such as a spouse or partner, you will need this information for both of you.

Salary

If you are on a salary or wage, the following documents may help you to prove your income:

Self-employed

If you are self-employed, you may not be paid a wage traditional wage. Usually, lenders will want to see your most recent Tax Return and ATO Notice of Assessment to get an idea of your income. If applicable, they may also want to see your business activity statement (BAS).

Government income

If you are on government payments, you will not have any payslips to help prove your income. Usually, the following paperwork is sufficient:

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3. ‘Other’ Income and assets

The lender will also want to see information regarding any other income you generate or assets you own. For example, you may own an investment property where you collect rental income.

It’s a good idea to gather information regarding any of the following, if applicable:

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4. Records of living expenses

Like when you applied for your current home loan, your lender will want to check your ability to meet repayment obligations. To do this, they will want to assess your everyday living expenses.

Living expenses could include any of the following:

5. Current home loan statements (including information on pay-out costs)

The new lender will need information regarding your current home loan. This could include:

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6. Tax Return with ATO Notice of Assessment

In most cases, your lender will need your most recent Tax Return and ATO Notice of Assessment. This could be dated within the last 12-months.

If you have not filed your last tax assessment, you will need to contact the ATO for further information on how to do this.

7. Debt and liabilities

Like when you applied for your current home loan, your lender will want to be aware of any debt or other liabilities you have. This could include:

So, there you have it, the paperwork you may need to gather before starting your refinancing journey. Now that you’ve got that sorted, how about comparing some current home loan rates on offer?

You might also like: What is the discharge of a mortgage?

Words by Kathryn Lee

Sources:

Interested in taking advantage of low interest rates? We can help you on your refinancing journey. To start, use our RefiRating tool below to get an idea of what products you could be eligible for.

Are you paying significantly more than you need to in interest? According to the results of an inquiry by the Australian Competition and Consumer Commission (ACCC), you might be.


Before we talk about what the ACCC Home Loan Price Inquiry found, let’s go back to where it all began.

Directed by Treasurer Josh Frydenberg in late 2019, the 14-month inquiry – which investigated the home loan supply industry – was initially spurred by the reluctance of the four major banks to pass on interest rate cuts in full.

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Between January and October 2019, the cash rate saw three reductions. Despite government pleas for lenders to pass savings onto customers, the major banks chose to only pass on the equivalent of three-quarters of these cuts.

“It’s costing someone with a $400,000 mortgage around $500 in higher interest payments than they otherwise should have to pay if these last three rate cuts were passed on in full,” Mr Frydenberg said following the announcement of the home loan price inquiry.

“But it’s not just these last three rate cuts where the banks have failed to pass them on, it’s actually what’s happened previously under the Labor government, there were 14 different rate cuts and only five of them were passed on in full.

“So clearly there’s a structural challenge here, there’s a pattern of behaviour and the Australian people are fed up.”

Although prompted by the failure to pass on cuts, the watchdog investigated the general pricing practice of the home loan supply industry. This included the difference in home loan costs for new and existing borrowers as well as what barriers prevent consumers from refinancing.

Now, let’s talk about what they found.

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Borrowers could be paying too much in interest

Australians with older home loans are the biggest losers when it comes to the money spent on interest repayments, according to the results of the ACCC inquiry.

The final report found that as a borrower’s loan gets older, the gap between what they pay and what a borrower with a new loan pays widens.

In September 2020, borrowers with home loans between three and five years old were found to be paying an average 58 basis points more in interest compared to the average interest rate paid on new loans.

For borrowers with loans between five and 10 years old, this jumped to an average 71 basis points more. Those with home loans greater than 10 years old were found to be paying around 104 basis points more than the average rate paid on new loans.

“If you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates,” ACCC Chair Rod Sims said.

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Why aren’t more Australians switching to better home loan rates?

Despite the high likelihood of savings, the inquiry found many Australians are choosing not to switch products or lenders.

For some, this is due to disengagement with the industry. Many borrowers are not aware of the benefits of switching products or refinancing.

“In our view, the fact that many borrowers with older home loans pay interest rates significantly higher than those available on new loans, is due to a lack of engagement among this cohort,” the report stated.

“If these borrowers were regularly engaging in the home loan market and aware of the significant savings available on new loans, we would expect there to be fewer loans with interest rates significantly higher than the average interest rate for new loans, as many of these borrowers would have switched lenders or home loan products, or asked their existing lender for a price similar to those available for new loans.”

In addition to a lack of borrower engagement, the inquiry found that the current loan cancellation process is also to blame.

The ACCC recommended lenders be obligated to provide consumers with a standard discharge form, to avoid confusion in the current process. It also recommended the process be timebound to a maximum of 10-days.

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ACCC recommended changes to the industry

1. A prompt for variable-rate borrowers

To improve engagement in the industry, the ACCC recommended lenders be obligated to prompt borrowers with variable rate home loans older than three-years.

“All lenders should be required to provide borrowers with variable rate loans originated three or more years ago with an annual prompt to encourage borrowers to engage in the home loan market to see if they could benefit from switching lenders or home loan products,” the report stated.

The prompt would be provided directly to borrowers and be designed to communicate the benefits of switching in a personalised way. It would also outline the next steps the borrower could take to secure a lower rate.

2. A standardised Discharge Authority form

To make the current process less confusing, the inquiry recommended lenders be required to provide borrowers with a standardised Discharge Authority form.

The new form template would not be able to vary between lenders and it would be designed to be easy to access, fill out and submit.

“Lenders should adopt an identical standard form template, rather than agreeing to common criteria and continuing to design their own forms, which would still potentially allow them to add fields or make forms unnecessarily complex,” the report stated.

“The form should only request details from the borrower that are necessary for their discharge request to be processed.”

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3. A maximum timeframe for existing lenders to process discharge requests

The report highlighted the importance of there being a maximum timeframe in place for how long a borrower discharge request can take to be processed.

Under the current process, borrowers are powerless when there are delays in processing. Lenders are also not required to discharge home loans within a particular timeframe.

“When delays occur in this processing, there is little that the borrower or new lender can do to expedite the process,” the report found.

The report recommended lenders be subject to a maximum time limit of 10 days, but also highlighted the need for further stakeholder consultation to ensure this timeframe is appropriate.

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4. Continued monitoring of competition and prices in the home loan market

The report concluded that the ACCC should continue to keep an eye on competition and pricing in the home loan market.

“The inquiry should focus on the 10 largest lenders in the home loan market and consider other lenders or groups of lenders (such as non-ADIs) as competition issues are identified that involve or impact those lenders,” the report concluded.

“The ACCC should report to the Treasurer annually over a five-year period, providing its first report to the Treasurer by 30 September 2022.”

This monitoring would include:

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How can I check my home loan health?

According to the inquiry’s findings, borrowers with older variable rate home loans are more likely to be paying more in interest.

It recommended impacted borrowers approach their lender to seek a lower rate or consider refinancing or switching lenders.

If you are concerned about your interest rate, the refinancing.com.au RefiRating tool may be able to help you unlock potential savings.

Words by Kathryn Lee

Sources:

Are you paying too much in interest? Refinancing to a lower rate might be a potential option. We can help you to review your home loan.

While Australia’s response to the coronavirus pandemic has been among the best in the world, many sectors of the economy are still feeling the effects.

The one million Australians who are self-employed are among those hit hardest, with the decline in hours worked in 2020 well documented.

More than eight out of 10 self-employed people told the Australian National University’s Centre for Social Research and Methods that their profits took a significant hit because of Covid.

As the name suggests, being self-employed means you’re not employed by a business, which pays you a consistent salary. Self-employed people earn income by contracting directly with clients, who pay per job. It’s up to the self-employed person to pay tax and other obligations.

Like others post-pandemic, many self-employed Aussies are looking for ways to reduce their costs.

One option that may suit is to refinance their home loan, which, if it’s done well, can deliver cost savings through lower interest rates and more flexible terms and conditions.

Recognising this, a number of financial institutions are currently offering specific deals for the self-employed.

Non-bank lender Resimac is offering up to an 0.5% interest rate cut in some cases. Aussie and Pepper Money Home Loans also have offers tailored for the self-employed as they deal with the fall-out of a challenging year.

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1. What documents will you need to refinance?

If you’re self-employed, financial institutions will generally want to get the same picture of you as they would for a customer on a regular, fixed income.

In most cases, this means they’ll want to get a good understanding of your past and potential taxable income, your credit history and your assets. How each lender assesses these can vary widely. It can also depend on the loan type.

For example, “low doc” or low documentation loans generally require less paperwork to verify your situation than other types of loans.

Generally, lenders will want to see most, if not all, of the following:

Check with your potential lender what their specific requirements are. It may also help to discuss your situation with a mortgage broker, who can help you to get a better understanding of which financial institutions have the requirements and loan offerings that might best suit you.

If you’ve been self-employed for less than two years, some lenders may want to see proof you’ve worked in the sector for longer than this before they accept your application. In these cases, payslips from your previous workplaces or references from ex-employers can help.

self-employed couple sitting in their cafe discussing their finances and home loan options

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2. What type of home loans could be suitable to you?

The types of home loans available to the self-employed are the same as for any other borrowers. It’s generally only the way your financial situation is assessed that’s different.

Why you’re refinancing will probably be a strong determining factor for which loan product you end up with, too. Are you looking to just cut the cost of your loan? Or are you looking for greater flexibility and better conditions?

In some cases, borrowers are looking to consolidate their loans with one lender or quickly access equity they have accrued in existing loans. Every situation is different, which means the type of loan may differ.

The self-employed often choose low doc loans, which have a lower documentation threshold, because often they can’t produce pay slips to verify their income.

Not all lenders offer this type of loan and with those that do, there may be trade-offs, such as higher interest rates and a lower loan-to-value ratio (LVR). A lower LVR means you can borrow a lower percentage of the total value of the loan property than if you had taken a full documentation loan.

Some loan products you might consider when refinancing a home loan include:

Variable interest loans can let you take advantage of lower interest rates when the market experiences a drop. In some cases, they can also allow you to make extra payments to reduce the term of your loan and save cash in the long run.

Variable-rate home loans, however, don’t provide consistency. You could end up paying relatively high interest rates for a time if the cash rate increases.

Fixed-rate loans allow you to commit to an agreed period of a fixed interest rate, giving you the certainty of knowing exactly how much you’ll need to be making in repayments. This can help you to budget with more certainty than with a variable rate.

These loans generally don’t allow extra repayments without penalty though, and in some cases, won’t offer offset accounts or redraw facilities.

You might also like: The cost of breaking a fixed-rate home loan

3. What are the pros and cons of refinancing self-employed home loans?

As with any financial decision, there are upsides and downsides to refinancing your home loan if you’re self-employed.

The pros include the following:

The cons include the following:

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4. How can you estimate your costs and what you could potentially afford?

When looking to refinance, and especially if you want to cut costs, it’s important to remember there may be fees and charges attached, even if it’s with the same lender.

The fees and charges associated with a new loan can vary widely and be dependent on such factors as which financial institution you’re using, which state and territory you live in, which loan product you’re accessing and how much equity you have.

Even if a new loan product gives you the savings you’re looking for, it can be a good idea to first check with your potential lender about all the costs involved in making the switch. It has to make financial sense.

The costs of refinancing can include the following, although fees can vary.

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How much you could potentially afford to borrow comes down to a raft of factors, which the lender assesses. Lenders look closely at your:

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5. How much could you potentially be saving by refinancing your home loan?

If you’re looking to cut loan costs, switching to one with a lower interest rate could save you thousands over the life of the loan.

For example, if you were paying 3.5% interest on a loan owing $300,000 over a remaining period of 15 years, you could save $7906 over the life of the loan if you switched to a loan with a 3.2% interest rate, with minimum monthly payments of $2101.

If you were able to increase your payments to $2145 per month while on the new interest rate, equal to the value of repayments under the original loan, these savings would rise to $10,081 over the loan’s lifespan. It would also allow you to pay off the loan four months earlier. The costs of switching should also be factored into saving calculations.

Words by Erin Delahunty

Sources:

Are you investigating refinancing your home loan? Talk to us to discuss your options or get your RefiRating to check your current home loan health.

The unprecedented refinancing boom of 2020 isn’t showing any signs of stopping. Mortgage holders have been taking advantage of low-interest rates in droves with $15billion in mortgages refinanced in May 2020 alone.

Restructuring your home loan can be a potential way to lower your mortgage repayments, putting extra money in your pockets. Refinancing can also be used to unlock equity in your home, to fund renovations or provide stability in tough times or can help with consolidating your debts as refinancing your home loan is a great way to streamline your finances and take advantage of low-interest rates.

There are many potential advantages to be gained when refinancing your home loan, but just like your original mortgage, it’s essential to pick loan features and terms right for you.

We’ve compiled a list of 8 refinancing tips, to help you feel confident you’re getting the most out of refinancing your home loan.


1. Is refinancing right for me? Consider these factors before taking the plunge

Before making the steps to restructure your home loan, it’s crucial to thoroughly understand your current financial situation, the potential savings to be made, and what you’d like to achieve from refinancing.

Before refinancing your loan, consider these factors:

The current interest rates

One of the most important factors to consider when restructuring your home loan is interest rates. Refinancing to a loan with just a few interest rate points lower could potentially save tens of thousands off your mortgage. With interest rates at historic lows, it’s worth investigating whether your current rate is the most competitive option out there.

The value and equity in your property

Having over 20% of the equity in your property could potentially allow you to avoid paying Lenders Mortgage Insurance (LMI). Your equity will essentially act as your deposit on the new loan, so paying LMI won’t be necessary.

Your credit rating

Don’t assume you’ll automatically be approved for refinancing because you were approved for the original mortgage. If you have missed payments on your mortgage or other debts in recent years, your credit rating might not be as healthy as it once was. Don’t forget that rejected loan applications can also affect your credit rating. Finding out your score before you apply can help manage your expectations and avoid any nasty surprises.

2. Calculate how much you could save – including fees

If you’re restructuring to save on your loan repayments, you need to understand what kind of savings can be made. You don’t have to be a mortgage expert, as there are plenty of tools you can use that will calculate the potential savings for you.

Remember, refinancing isn’t free, and they’re a lot of potential fees involved depending on your lender, loan terms and whether you’re refinancing externally or internally.

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3. Consider consolidating your debts

If you have debts outside of your mortgage, you could potentially consolidate them into your mortgage when refinancing. Personal loans, credit cards and car loans generally have higher interest rates than home loans. Consolidating these debts under your mortgage means you’ll have the same, lower interest rate across all debts, which could lead to potential savings and less complicated finances.

4. Talk to your current lender

If you are looking outside of your current financial institution to refinance, ask them if they can provide you with a better deal before breaking up with them. Mortgage providers usually have specified retention teams, tasked with finding ways to keep existing customers looking to jump ship. You may get lucky and be offered a better deal than you’ve found elsewhere to keep your business.

Remember, there are different fees and costs involved when refinancing internally or externally, which should also factor into your decision.

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5. Pick the right rate

While finding the lowest interest rate is usually considered the most important refinancing factor, it’s important to also think about your long-term plan. It would be a shame if you found the lowest variable rate, only to have interest rates start to rise soon after. Although the current cash rate is presumed to remain the same until 2023, nothing is set in stone. Choosing a fixed rate, even at a slightly higher rate, could allow you the stability that variable rates don’t, making it easier to plan for the future.

However, fixed-rate loans sometimes lack the flexibility that variable rate loans offer, meaning you might have to choose between stability and loan features.

It is also a possibility that once you’re locked into a fixed-rate loan, rates could drop. If you want the best of both worlds, a mixed rate (a combination of fixed and variable) could be the best option for you.

6. Beware honeymoon rates!

Go over your loan terms with a fine-tooth comb to avoid falling into the trap of honeymoon rates. Lender’s sometimes offer very low introductory interest rates to entice new customers to their product. Unfortunately, after the initial fixed-rate term, rates can rise considerably, often to their less competitive, standard rates. Without proper planning, the hike in rates can leave borrowers struggling with their mortgage repayments. Before locking yourself into a new mortgage, ensure you completely understand the terms and conditions.

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7. Loan term and time frame

Time is an important consideration when refinancing. Ask yourself: how long after refinancing do you plan to sell the property? If it’s only a few years, it might not give you enough time to reap the potential savings, when you take the fees and costs of refinancing into account.

It’s generally advised to refinance your loan to a similar loan term than what you have remaining on your current one. This is because the longer you have your loan, the more interest you’ll pay, which could potentially wipe out any of the savings you would have made by changing to a lower interest rate.

However, if you’re refinancing your loan to lower your repayments, switching to a shorter loan term could have the opposite effect, as you’ll have to pay off the same principal amount in a shorter time frame. If overall savings are your goal, a shorter loan term could potentially be your answer, plus you’ll be saying “Bon Voyage” to your mortgage sooner rather than later.

8. Get expert advice

If you’re still not 100% sure how to restructure your home loan to best suit your needs, speaking to an expert could be the answer.

One of our refinancing experts will answer any questions you might have and help calculate what you could save on your home loan.

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Words by Nell Matzen

Sources:

Has your lender made the cut? Take advantage of when lenders start dropping their rates. Talk to us if you need help organising your refinancing or a pre-approval!

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