Can I refinance my home loan during Coronavirus?
Thursday 16 April 2020
It’s no secret that mortgage repayments are one of the biggest bills to hit Aussie mailboxes each month, and now with the financial impact of COVID-19, they may be causing even more stress than usual.
The truth is, refinancing your home loan could end up saving you big bucks each month, especially with interest rates sitting as low as they are.
However, Mozo’s Property Expert, Steve Jovcevski says that while the timing might seem right to refinance, this decision is about whether a borrower is likely to be approved.
“It’s always a good time to refinance to a lower interest rate, if you can, and we have some of the best home loan rates since world war two at the moment,” he says.
“There are lenders bending over backwards to get good quality customers so I would say that the time is now - but the main issue is whether you are able to qualify or not.”
And with many Australians facing job loss, reduced hours and income, refinancing may not be as easy as it was before.
Is now the right time to refinance my mortgage?
Under normal circumstances, home loan lenders are always on the hunt for quality customers and minimal risk when it comes to providing you with a mortgage. In the current environment these qualifying factors may be even stricter. They often look at things like job security, credit scores, financial health and, in the case of refinancing, the amount of equity you have built up on your existing loan.
So, if you have seen minimal financial impact from the outbreak of coronavirus, now may be the suitable time for you to consider a refinance home loan as interest rates continue to drop amongst lenders.
Jovcevski says that one thing refinancers need to keep in mind is that property valuations may come out lower than expected due to the risk of the property market dropping.
“When you talk to these lenders about getting approval for refinancing, ask whether the valuation is free because you don’t want to pay for valuation if it’s not going to go ahead or come in at the price you need it to,” he says.
“But if you have a lot paid off on your loan and have a low LVR, and you are still working, then now would probably be an ideal time to refinance and you shouldn’t have any problems.”
Can I refinance my home loan if I am unemployed?
On the flip side, if you or your partner has lost their job or had a reduced income as a result of COVID-19, you may not qualify for a new refinance loan at all.
“To refinance a home loan, basically if you do become unemployed chances are you won't be able to service the loan and you can’t refinance - that’s the simple answer,” Jovcevski says.
“However, with the government’s JobKeeper Scheme, if you get returned back to work and they continue to pay your salary then there could be the possibility. But there are a whole bunch of other factors, such as lenders cracking down on potential borrowers that work in particular industries, that depend on casual staff or contractors.”
For example, popular online bank, ING tightened its lending criteria to exclude applicants that depend on casual or contractor income as primary income.
“There are also a few lenders that are blacklisting specific industries that are affected most by the pandemic, such as people in the airline industry or the hospitality industry.”
Which lender should I refinance my home loan with?
If you are in the fortunate position to refinance your mortgage, before you rush off to the closest major bank, there are some other lenders you may want to consider as well.
While the bigger banks may seem like a solid option, smaller lenders such as online, mutual banks and credit unions often offer more competitive rates.
At the moment, the lowest ongoing variable rate in the Mozo database sits at 2.47% (2.50% comparison rate*), whereas the current average rate amongst the big four banks is 3.67%.
What should I look for in a refinance loan?
There are a bunch of tips and tricks when refinancing your mortgage, here are three key things to keep in mind:
- Low interest: The lower interest rate, the less you pay in interest month-to-month, and if you have a bigger equity in your property you would likely qualify for market-leading rates.
- Flexible repayment options: When it comes to home loan repayments, flexibility is key. It helps if later down the track you want to make additional contributions and ultimately pay down your mortgage sooner.
- Minimal fees: There’s no point opting for a lower interest rate if you make up the cost in pesky fees! Weigh up the cost of fees versus the rate and see if you can find a loan that ticks both boxes.
What other options do I have if I can’t refinance?
If refinancing is not an option for you, there may be a couple of other ways you can lighten the load of your current mortgage.
Since the outbreak of COVID-19 and the implementation of social distancing, home loan lenders have introduced Coronavirus relief packages which are designed to help Aussies financially affected by the crisis.
Some of the benefits include, repayment pauses, reduced repayments, decreased interest rates, waived fees and more. So, it may be worth checking in with your lender to see what has been put in place to lend you a hand.
“If you are having trouble paying down your loan, absolutely I would recommend that you call your bank and ask for a repayment deferral,” Jovcevski says.
“You could also ask your lender if you could just pay the interest off and not the principal, that’ll reduce your repayments significantly.”
Another thing to look out for is a handy feature known as a repayment holiday, which allows you to “take a break” from paying off your home loan. Repayment holidays only last for a short period of time, however it may be enough to help you get back on your feet while you self-isolate.
This feature would have been attached to your mortgage when you first took it out, so it’s worth checking with your lender whether it is available to you.
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Want to check out some refinance home loan options on the market? Take a peek at the table below or head on over to our refinance home loan comparison tool.