It's an owner-occupier mortgage and I've invested in the place so it probably has about $100k equity I can unlock if I refinance. Can I do that with my existing lender or is there no advantage? I'm already on 3.74% so I'm reasonably happy with the rate anyway.
Refinance to access equity in my home loan
gwong on 17/12/2016 - 12:18
Comments
Hi,
I am a 'lending specialist' (I write home loans day in day out) at one of the banks. I would say it's generally easier to do a 'top up' at your existing lender. 3.74% is a good rate and I would stick with a bank doing the right thing by me. You are likely going to need a lot of documentation to re-finance where as if you are pulling equity up to 80% LVR on an existing loan then most banks won't even question the purpose. For example the bank I work at only needs proof of the purpose of the funds for an owner occupied loan over $250k. For an investment loan it's $150k.
The only other thing to look at is a repayment calculator. Put in your current loan amount and then put in a loan with your 100k on top and look at the total interest payable over the life of the loan. While it can seem like a cheap option initially, if you capitalise it over 30 years the costs/interest really piles up. Also keep in mind the rates are at historic lows and you are likely going to be paying a lot more on this 100k in 5-10 years time.
Any questions let me know :)
Thanks. Yeah I'd be using an offset/redraw anyway so I'm more doing it to pay less interest as well as having further flexibility to renovate. I'm with UBank so I'll give them a call to check out if it is possible to do it with them.
In that case it's a good option. Rainy day funds at no cost if in an offset.
UBank may struggle with that request they are very vanilla but all the best to you, I'm sure it can't be that hard.
@gwong if you were thinking to use the funds to renovate you'd want to mention this upfront to them as in their standard T&Cs -refer to section 5.12- it is a requirement that you do so.
Our company has dealt extensively with Advantedge/AFSH Nominees (the wholesale product issuer behind uBank) and have found them to be excellent with respect to construction loans. We can't speak for uBank's policy with respect to your loan as it would be a product of the loan contract you committed to and their present policy. However, in theory what you're proposing doesn't sound altogether challenging if they follow Advantedge's general credit policy (they might not depending on your actual loan contract and because they would have the discretion to limit general policies to improve operational efficiency).
If I refinance with another lender they would automatically do a fresh valuation, right?
Whether it is beneficial to release $100,000 at your existing lender will be a product primarily of:
1. What their equity release policy is like. Conservative lenders (which are typically the cheapest) rarely approve $100,000 equity releases for applicants without clear reasons (and commonly) evidence given as to what the money is being used for. $50,000 or less is easier to argue for general liquidity purposes unless you are a high income earner with a very large debt. Regardless, you will need to demonstrate you can afford to repay the money being released to your present lender - some lenders have very lenient debt servicing hurdles - others do not. Which means if they say no, you still may be able to find a lender who says yes.
2. What the purpose of the equity release is. If it is for the purposes of starting a business, investing in property or investment in shares, the rate is not guaranteed to be your owner occupied rate - it could be noticeably higher. Furthermore, not all lenders allow you to do P&I for your home loan repayment and IO for your investment equity release account. You'd want to discuss whether your lender finds the accepted purpose satisfactory upfront and how they propose to structure the equity release sub-account. This brings us to point 3..
3. Type of products available to you at your present lender. Some lenders will only approve you for term loans that require a repayment even if you are not fully drawn down on the monies released (which is awful if you are not planning to use the money as soon as it is approved). Other lenders offer term loans that operate like pseudo lines of credit. The most flexible structure is a line of credit - which operates like a big credit card (and is a tad more expensive than term loans) but is potentially far more appropriate to scenarios where you would value being able to greatly vary the size of the required repayment in line with the balance drawn. Depending on what you had in mind, some structures could be vastly superior to others for your intended goals.As such, depending on the answers to the above questions it may worth sticking with your existing lender or there may be better options available elsewhere.
Hope this helps and best of luck.
Thanks for the info.
If you're happy with your current lender, by all means chat with them first about restructuring the loan, if they are willing it will likely be cheaper & easier than refinancing.