If you want to refinance your home mortgage, you’re probably wondering what the rates for refinancing home loans are.
The short answer is ‘it depends’, because, as any good finance broker in Sydney will tell you, different lenders charge different interest rates to different types of borrowers.
With that in mind, let’s look at five of the main factors that affect refinance home loan rates.
1. Equity
The more equity you have, the more likely you are to be offered lower rates for refinancing your home loan.
Equity is the difference between the value of the property and your outstanding home loan and can be expressed either in dollar or percentage terms. So if your property was worth $1 million and your remaining loan was $700,000, your equity would be $300,000 or 30%.
Generally, lenders expect you to have at least 20% equity when refinancing a home mortgage, although exceptions apply. All things being equal, someone with, say, 30% equity would probably be offered lower rates than someone with 20%.
2. Income
A higher income is also likely to help you qualify for lower refinance home loan rates, because, all things being equal, lenders will assume you’re more likely to repay the loan than someone with a lower income.
By the way, income isn’t just your salary; it can also include money you earn from other sources, such as property investing, shares, or a side hustle.
3. Spending and saving
A high income isn’t the be-all and end-all, though, because a household that earns $300,000 per year and spends $280,000 will have less capacity to repay a mortgage than one that has an income of $200,000 and expenses of $90,000.
So lenders will also consider your spending habits and savings rate. The thriftier you are, the more creditworthy you’ll look and the more likely you are to be offered lower refinance home loan rates.
4. Credit score
As part of the refinancing process, lenders will almost certainly look at your credit history. Generally, borrowers with higher credit scores get offered lower refinancing rates than those with lower credit scores.
5. Employment status
Lenders will also examine your job history when assessing your application to refinance your home mortgage. Generally, they prefer borrowers who:
- Work in full-time jobs – rather than part-time or casual jobs
- Have been with the same company for years – rather than months
- Have a record of stable employment – rather than inconsistent employment
That doesn’t mean you can’t qualify for a home loan refinance if you have a part-time job or you’ve been with your company for a short period of time or you have an erratic job history – you can.
Rather, it means that lenders prefer customers who seem to have a more reliable and predictable income stream, because they assume those borrowers would be more likely to meet their mortgage commitments. As a result, they tend to offer them more favorable rates for refinancing home loans.
How to begin the refinance process
If you want to refinance your home loan, or you’re merely considering it, it would be wise to get expert advice from a high-quality finance broker in Sydney, like Loan Station.
Loan Station will be able to explain the ins and outs of refinancing, crunch the numbers for you and – if you decide to proceed – compare refinance home mortgage interest rates on your behalf. That last step is particularly important if, like many people, the main reason you’ve decided to refinance is to slash the amount of money you pay over the life of your loan.
