As you may remember, self-employed borrowers generally follow a slightly different process when applying for a home loan. Applying to refinance is no different. There are a few reasons why you might consider refinancing your home loan as a business owner – especially if you’ve had the loan for a few years. Over time, things change. Your personal situation might be different, the property market may have shifted, so the loan you initially took out may not be right for you anymore.
That’s where refinancing comes in.
Refinancing your home loan involves replacing your existing home loan with a new loan. In many cases, switching your home loan is done to negotiate a more favourable interest rate, to change the length of the loan period or to update your home loan with new features. This can be a home loan you have with another lender or with Westpac.
What are the benefits of refinancing your home loan?
There are a few reasons why refinancing your home loan could be beneficial for self-employed borrowers – let's take a look.
To get a better interest rate
This is one of the main reasons people choose to refinance their home loan. If you can refinance your home loan for a better interest rate, this could mean that your monthly repayments are reduced – saving you money and time in the long run. You could potentially pay off your home loan sooner as the extra money you’re saving on interest repayments could be pointed towards paying off the principal loan amount.
To get new home loan features
As you probably know, not all home loans are the same. If you’ve had your current loan for a period of time, your needs may have changed. You might be able to add an offset or redraw account to your mortgage, or perhaps choose to split your home loan between variable and fixed interest rates.
To consolidate debt
Streamlining debt is an appealing concept for some homeowners. Consolidating other debts (like a business loan, credit card or personal loan) into your mortgage means you’d have one repayment each month instead of several, which could help you simplify your finances and repayments.
When it comes to refinancing, some borrowers might think that the process can be complicated – but it’s a lot simpler than you might think. So, how do you get started? Here’s what you need to know.
Review your current situation and do your research
When thinking about refinancing as a business owner, there are a few initial steps you should take.
Take stock of your current situation
It’s important to assess your current circumstances before starting the refinance process. You might look into things like:
- your overall financial situation
- remainder owing on your loan
- your loan to value ratio
These things will have an impact on whether refinancing is the right move for you, so take the time to review your position.
Compare home loan options and features
A better interest rate is generally one of the main reasons people choose to refinance, but when comparing new home loan options, you should think about the interest rate as part of the equation. Refinancing is a good opportunity to optimise your current loan and make your home loan work harder for you – like choosing features that are more aligned with your needs. Keep in mind that typically self-employed borrowers can apply for the same home loans, offers and rates as salary-earners.
For example, an offset account could help reduce your interest repayments. Interest-only repayments might help free up cash flow for your business. Your home loan may be coming to the end of a fixed rate term and it’s a good time to reassess. Refinancing gives you the opportunity to really consider your wants and needs when it comes to a home loan, and to explore the different options and features that might be available to you.
Consider the costs of refinancing
Depending on your situation, there could be several different fees to consider when refinancing – so it’s important to weigh up the benefits and the costs in order to determine whether switching your home loan is worth it.
Some lenders often offer lower introductory interest rates (i.e. short term interest rates, that revert to a different ongoing rate), but it’s important to run the numbers to work out whether these offers will be valuable to you in the long run. As part of the calculations, you’ll need to take into account things like whether you’ll need to pay exit fees from your current loan, as well as upfront fees and ongoing fees that might be charged as part of your new loan. For example, if you choose to exit a fixed-rate loan early, there could be significant break costs that might outweigh any benefits that come with refinancing.
Another important element to consider is your equity position. If the loan-to-value ratio of your current property is above 80%, you may need to pay lenders mortgage insurance again in order to have the loan approved – which can often be costly.
What if I need to refinance my home loan quickly?
If your original self-employed home loan is through Westpac, you might be aware of our Fast Track Assessment Process. The same quick process is available for refinancing your home loan too.
Fast Track allows you to apply for a home loan using only your last two ATO notice of assessments – rather than your business financials – which can help us speed up the application process.
You might be eligible for Fast Track if you:
- are self-employed for more than 2 years
- will need an LVR of 80% or less
- can provide your last two years of personal notice of assessment from the ATO
- won't need to rely on any other sources of income to afford your home loan repayments, other than income shown in your notice of assessments
Chat to your local Home Finance Manager to see if Fast Track might be an option for you.
What do lenders look for with a standard home loan refinance for self-employed borrowers?
When it comes to applying for a home loan as a business owner, you might recall that the more information you can provide – the stronger your application will be. The same is true when it comes to refinancing.
Your lender will want to see that you still have the ability to comfortably make repayments on your new loan, and the best way to demonstrate this is by showing evidence of your business’ financial position. Most lenders do this by looking at your past income tax statements. Depending on whether you’re a sole trader, partnership or company, you’ll need to show different types of documents in order to refinance your home loan.
Sole traders - last two years of:
- Personal tax returns, supported by each year’s ATO notice of assessments.
Business partnerships, trusts and companies - last two years of:
- Personal tax returns, supported by each year’s ATO notice of assessment
- Partnership/company/trust tax returns
- Financial statements (including profit and loss accounts, and balance sheets)
Aside from business and personal financial information, your lender will generally ask to see things like:
- Information on the loan to be refinanced and the current property
- A credit history check
- Statements for savings and assets
- Statements for any liabilities, like credit cards and loans you might have with other financial institutions
The key here is to provide as much information as possible. Staying on top of your paperwork and making sure your documentation is organised is a great start. This can really make a difference to how seamless your refinance experience is.
How to apply
Now that you’ve assessed your needs a homeowner and have got your documents sorted, now it’s time to understand the application process. The refinance process for self-employed borrowers is the same as a standard home loan application process. There are four main ways to refinance your home loan. You can choose to apply:
- Over the phone
- Through your mortgage broker
- In-person at your nearest branch
Ready to refinance?
Refinancing your home loan as a business owner doesn’t have to be complicated. At Westpac, we’re here to help, every step of the way – and the best way to get support is to reach out. For more information on how you can refinance your home loan with Westpac, call us on 131 900 or visit a branch to chat to your local Home Finance Manager.