6 factors lenders may take into consideration when you refinance your home loan

For most people, the refinancing process can be just as confusing as buying a home and finding the right home loan. If you’re thinking about refinancing your home loan, here are six factors that lenders take into consideration when you apply.

1. Information on your current home loan

One of the main differences that sets an application to refinance apart from an initial home loan application is that you already have an existing home loan. Lenders will take into consideration:

• The track record of your payment history
• The property’s current value
• How much equity you have to calculate the loan to value (LVR) ratio

2. Your credit score

Just like when you first applied for your home loan, lenders will consider your credit score when assessing your refinance application. Your credit score is a rating provided by credit reporting bodies, based on your borrowing and repayment history. It typically represents your likelihood to pay your bills on time and a higher score indicates to lenders you’re a lower credit risk. Your credit score is calculated based on several factors in your credit report including:

• Your payment history – have you made payments on time, missed or had late payments?  
• The amount of credit associated with your name – credit card, personal loans and other debts and liabilities  
• The length of your credit history  
• The number of recent requests a customer has made

Learn more about how your credit score impacts application and how to improve it here.

3. Proof of assets

Besides your current home, lenders like to have a good idea of the different assets that you own. From cash in the bank to shares and even high-end art, lenders will consider your assets when assessing your risk.  

Here are some of the assets your lender might like to know about:

• Savings and superannuation
• Shares, bonds, cryptocurrency and other investments
• Cars, boats, motorcycles and other vehicles
• High-end jewellery and art

4. Proof of income and employment

Another factor that plays a key role in your refinancing application is your income. Similar to when you first applied for your home loan, you’ll need to provide documents that verify your income. Income is classified as payments that are regular and ongoing, and can come from a number of sources including:

• PAYG employment
• Self employment
• Rental income  
• Government payments

Learn more about how income impacts your serviceability assessment, and documents you can use to verify your income here.

5. Your debts and liabilities

Any debt or financial obligations that you have are assessed as part of your application. This can include:

• Existing home loans including owner occupied or investment
• Credit Cards – maximum credit limit is taken into account
• Other loans including personal, car, business and margin loans
• HECS-HELP
• Line of Credit
• Overdraft

Your debt and expenses will help us determine whether we think you can afford to repay the amount you are seeking to borrow. Learn more about how your debt and expenses impact your application here.  

6. Your expenses

Your new lender will consider your regular living expenses and how they could impact your ability to service your home loan. If you have poor spending habits, potential lenders are more likely to consider you a higher-risk borrower.  

Your expenses can cover a wide variety of payments including:

• Food and household supplies
• Utilities and maintenance costs – strata, water, electricity, council rates, Insurance, etc
• Communication bills – phone, internet and subscription services such as Netflix, Spotify, Kayo, etc
• Transport and automotive – public transport, car registration, insurance, petrol, tolls, etc
• Medical, health and fitness – gym memberships, prescriptions, eye care, dental, beauty appointments including hair, etc
• Entertainment – movies, alcohol, holidays, dining out, etc

It’s important to be honest about your expenses when applying - if you underestimate your expenses, this will only impact your ability to service your home loan in the long term.   

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.