Camden Professionals

Refinance or Restructure Your Loans?

Is It Time to Review Your Loan Structure?

As interest rates, economic conditions and personal circumstances continue to evolve, many Australians are asking the same question:

“Should I refinance my loans?”

For some borrowers, rising repayments, tighter cash flow or changing financial goals make refinancing an attractive option. However, a lower interest rate is not always the complete solution.

In many cases, the real issue lies in the way debt has been structured over time. Multiple loans, investment properties, business lending facilities and changing financial objectives can create a lending structure that no longer aligns with your current needs.

This is where the discussion often shifts from simply refinancing to restructuring debt.

Understanding the difference between refinancing and restructuring can help borrowers make more informed financial decisions and potentially improve both cash flow and long-term outcomes.

What Is Refinancing?

Refinancing involves replacing an existing loan with a new loan, either with your current lender or a different lender. Borrowers commonly refinance to obtain a lower interest rate, access additional features, consolidate debt or release equity from a property. According to major Australian lenders such as NAB, refinancing can help reduce repayments, improve loan flexibility and provide access to equity for renovations, investments or other financial goals.

Common reasons to refinance include:

Lowering interest costs
Reducing monthly repayments
Accessing equity
Consolidating multiple debts
Obtaining better loan features such as offset accounts
Changing from fixed to variable rates (or vice versa)

While refinancing can generate significant savings, borrowers should also consider costs such as discharge fees, application fees, valuation costs and potential break costs on fixed-rate loans.

What Is Loan Restructuring?

Loan restructuring takes a broader view of your financial position.

Rather than replacing an existing loan, restructuring focuses on reviewing and adjusting how debt is arranged to better support cash flow, financial objectives and future plans.

Restructuring may involve:

Consolidating multiple facilities
Adjusting repayment terms
Changing loan types
Separating business and personal debt
Reviewing security arrangements
Reallocating debt across assets
Improving cash flow management

Unlike refinancing, restructuring focuses on whether the overall lending framework remains appropriate for your current circumstances.

When Loan Repayments Become Harder to Manage

One of the most common reasons borrowers review their lending arrangements is increasing repayment pressure.

This may result from:

Rising interest rates
Increased living costs
Business cash flow fluctuations
Reduced household income
New family commitments
Investment property expenses

When repayments consistently place pressure on finances, it may indicate that your lending structure requires review rather than simply needing a lower interest rate.

Why a Lower Interest Rate Isn’t Always the Answer

Many borrowers focus exclusively on finding a cheaper rate.

While interest rates certainly matter, they are only one component of an effective lending strategy.

Other factors that can significantly impact financial outcomes include:

Loan term length
Principal and interest versus interest-only repayments
Offset account utilisation
Debt allocation across assets
Loan features and flexibility
Repayment frequency

Sometimes the underlying problem has little to do with the interest rate itself and more to do with how the debt has been structured.

Multiple Loans Can Create Complexity

Over time, borrowers often accumulate various lending facilities.

Examples include:

Business Owners

Commercial property loans
Equipment finance
Vehicle finance
Working capital facilities
Business overdrafts

Property Investors

Owner-occupied home loans
Investment loans
Lines of credit
SMSF lending arrangements

As lending structures become more complex, they often become harder to monitor and manage.

This complexity can create inefficiencies, increase costs and make strategic planning more difficult.

Your Financial Goals May Have Changed

A loan structure established several years ago may no longer suit your current objectives.

Circumstances evolve:

Businesses expand
Families grow
Investment portfolios increase
Retirement planning becomes a priority
Wealth accumulation strategies shift

Regular reviews help ensure lending arrangements continue supporting your long-term goals.

Tight Cash Flow Doesn’t Always Mean You Need More Borrowing

When cash flow becomes constrained, many borrowers assume they require additional funding.

However, financial pressure may instead arise from:

Poorly aligned repayment schedules
Multiple overlapping facilities
Inappropriate loan terms
Underutilised loan features
Debt structures that no longer suit current circumstances

A lending review may uncover opportunities to improve cash flow without increasing overall debt levels.

Lending Structures Can Become Outdated

Many borrowers establish loan arrangements during a particular stage of life and then leave them unchanged for years.

Meanwhile:

Property values increase
Equity grows
Tax circumstances change
Business profitability shifts
Family priorities evolve

An outdated lending structure can create unnecessary financial friction and may prevent borrowers from fully leveraging available opportunities.

Regular loan reviews help identify whether existing facilities continue to support current needs.

Refinancing vs Restructuring: Which Is Right for You?

Refinancing May Be Appropriate If:

You want a lower interest rate
Another lender offers better terms
You need additional loan features
You want to access equity
You wish to consolidate debt

Restructuring May Be Appropriate If:

Cash flow is under pressure
Multiple loans have become difficult to manage
Financial goals have changed
Your business has grown
You want greater flexibility and control over debt management

In many cases, the most effective solution may involve both refinancing and restructuring together.

The best approach depends on your unique financial circumstances and objectives.

The Importance of Regular Lending Reviews

Many Australians only review their loans when financial pressure begins to build.

Unfortunately, this often means opportunities have already been missed.

Regular lending reviews can help borrowers:

Identify savings opportunities
Improve cash flow
Reduce financial complexity
Align lending with current goals
Enhance long-term wealth creation strategies

Just as investments and tax strategies should be reviewed periodically, lending structures should also evolve alongside changing financial circumstances.

Frequently Asked Questions

How often should I review my loans?

Most financial professionals recommend reviewing lending arrangements at least every 12 to 24 months, or whenever significant life, business or investment changes occur.

Does refinancing affect my credit score?

A refinance application generally involves a credit enquiry, which may have a minor temporary impact on your credit score. However, responsible loan management remains the most important factor affecting creditworthiness.

Can I refinance if my financial circumstances have changed?

Possibly. Lenders assess income, expenses, assets, liabilities and serviceability at the time of application. Significant equity may also improve refinancing opportunities.

What is the biggest mistake borrowers make when refinancing?

Many borrowers focus solely on interest rates while overlooking loan structure, fees, features and long-term objectives.

Can restructuring improve cash flow without borrowing more money?

Yes. Adjusting repayment terms, consolidating facilities and redesigning lending structures can often improve cash flow without increasing total debt levels.

Should property investors review their lending arrangements after recent Federal Budget changes?

Yes. Recent changes affecting property investment taxation and lender serviceability assessments may impact borrowing capacity and investment strategies. Investors should regularly review their loan structures to ensure they remain aligned with current objectives.

Conclusion

Refinancing can be an effective tool for reducing interest costs and accessing better loan features. However, it is not always the complete answer.

For many borrowers, the real opportunity lies in reviewing the broader lending structure and ensuring it remains aligned with current financial goals, cash flow requirements and future plans.

Whether you’re a homeowner, business owner or property investor, a regular lending review can help uncover opportunities to improve financial efficiency, reduce complexity and position yourself for long-term success.

The key is not simply asking whether you should refinance—but whether your entire lending structure is still working for you.

Source:

NAB
ANZ
gov.au

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Camden Professionals

Construction Loans: The Basics Explained

Construction loans are a specialised type of financing designed for building new homes, renovating properties, or making large-scale additions. Unlike traditional home loans, construction loans are released in stages as the project progresses.

Whether you’re an owner-builder or working with a licensed construction company, understanding how construction loans work is key to a successful project.

What is a Construction Loan?

A construction loan is short-term financing used to fund the building or major renovation of a property. It’s different from a standard mortgage in several ways:

Funds are disbursed in stages (called “draws”) as construction progresses, not in a lump sum.
Interest is only charged on the amount drawn, not the full loan value.
Once the project is complete, the loan is either paid off or converted into a standard home loan (also known as permanent financing).

Types of Construction Loans

Construction-to-Permanent Loan
- One loan covers both the construction and the mortgage.
- Converts automatically into a home loan when construction is complete.
Construction-Only Loan (Standalone Loan)
- Covers only the building phase.
- Must be repaid or refinanced into a mortgage after the project ends.
- Often comes with higher interest rates and stricter approval requirements.
Renovation Loan
- For major upgrades to existing homes.
- Funds are released in stages and used similarly to a construction loan.

How Construction Loans Work

Application and Approval Process

To apply, you’ll need:

Detailed building plans
A fixed-price contract with a licensed builder
Construction schedule and budget
Council permits and insurance documents

The lender will assess:

Your credit history, income, debts, and assets
The builder’s qualifications
The feasibility of the construction project

Draw Schedule and Fund Disbursement

Funds are released in stages aligned with construction milestones (e.g., slab, frame, lock-up, fit-out, completion). Before each draw:

The builder submits an invoice.
A third-party inspection confirms the work is complete.
If approved, the lender releases the next payment.

Interest Payments

During construction, you only pay interest on the funds drawn—not the total loan amount. These payments are usually made monthly.

Once construction is finished:

The loan is either repaid or refinanced into a long-term mortgage with principal and interest repayments.

Eligibility Requirements

To qualify for a construction loan, lenders typically require:

Strong credit score and stable income
At least a 20% deposit or equity contribution
A licensed builder with relevant permits and insurance
A realistic budget and timeline

Key Benefits of Construction Loans

Customisation: Build your dream home from the ground up, with full control over design and layout.
Interest Savings: Pay interest only on the amount drawn down, not the full loan amount.
Flexible Financing: Payments align with project phases, giving better cash flow control during the build.

Risks and Challenges

Higher Costs: Interest rates and fees are usually higher than standard home loans.
Complex Approval Process: Requires detailed paperwork, planning, and lender scrutiny.
Potential for Delays and Budget Blowouts: Weather, material shortages, or changes in scope can delay the project or increase costs.

Tip: Always include a contingency budget (typically 10–15%) to handle unexpected expenses.

Final Thoughts

Construction loans offer flexibility and control when building or renovating, but they come with unique requirements and risks. A successful project depends on:

Careful planning
Choosing the right builder
Having financial buffers
Understanding loan terms and your obligations

If you’re considering a construction loan, speak with a mortgage broker or financial adviser to ensure it’s the right choice for your situation.

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Why Borrowers Are Turning to Non-Bank Lenders

In today’s fast-paced financial landscape, flexibility and speed often outweigh the traditional routes of securing a loan. For many borrowers, Non-Bank Lenders are becoming the go-to solution for funding needs across various sectors. Whether you’re navigating the complexities of property finance or seeking short-term business capital, Non-Bank Lenders offer distinct advantages that can make all the difference.

What is a Non-Bank Lender?

A Non-Bank Lender, also known as a private lender or alternative lender, is a financial institution that provides loans and other financial products outside the traditional banking system. Unlike banks, which are regulated depository institutions, Non-Bank Lenders do not hold banking licenses and do not offer services like savings accounts. Instead, they hold regulatory financial licenses that allow them to offer specialized lending products to borrowers who may have substantial assets to secure their loan but do not meet the strict criteria of traditional banks.

Non-Bank Lenders have become an essential part of the financial landscape, contributing to increased competition in the lending industry and offering borrowers greater choices when seeking financing options. As the market continues to evolve, they play a crucial role in addressing the diverse financial needs of borrowers and promoting financial inclusion for a wider range of individuals and businesses.

Top 5 Reasons Borrowers Use Non-Bank Lenders

Speedy Loan Approvals

Non-Bank Lenders are known for their fast, flexible, short-term loans and rapid loan approval processes. Unlike the often time-consuming processes at traditional banks, these lenders provide quick approvals, allowing borrowers to act swiftly in dynamic markets like real estate.

Flexibility

Non-Bank Lenders typically employ more flexible underwriting criteria compared to traditional banks. This makes financing more accessible to borrowers whose credit histories or financial situations may not meet standard banking requirements. This flexibility opens the door to more funding opportunities for various projects, enhancing business potential.

Tailored Lending Solutions

Non-Bank Lenders offer the advantage of tailored lending solutions. Recognizing that borrowers have unique financial objectives, these lenders craft bespoke loan products that align with the specific needs and preferences of borrowers and brokers alike. This enables borrowers to access the ideal financial tools to achieve their business goals.

Wide Range of Products

Specializing in unique products for various real estate and business projects, Non-Bank Lenders act quickly, helping borrowers secure funding when time is critical. Their extensive range of financial products allows borrowers to find the right fit for a wide variety of projects and investment opportunities.

Personalized Relationship Management

Non-Bank Lenders place a strong emphasis on building relationships with both brokers and direct borrowers. This personalized approach fosters open communication and helps lenders understand the specific goals and challenges of their clients. By offering tailored guidance and support, Non-Bank Lenders provide an enhanced lending experience.

Conclusion

The rise of Non-Bank Lenders has transformed the lending landscape, providing new opportunities for borrowers seeking finance. As the real estate and business markets continue to evolve, many borrowers are discovering that Non-Bank Lenders offer faster, more flexible, and tailored financing solutions compared to traditional banks. Their speed, personalized service, and wide range of products make them an appealing choice for those who need funding quickly and efficiently. Whether you’re looking for property finance or short-term business capital, turning to a Non-Bank Lender may be the right decision to meet your financial needs.

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Can You Invest in Property with Bad Credit?

Investing in property has long been a proven strategy for building wealth, but for individuals with a poor credit history, it can feel like an uphill battle. Traditional lenders are often hesitant to approve home loans for those with bad credit, making homeownership seem out of reach. However, while securing a loan may be more challenging, it is by no means impossible. With the right strategies, financial planning, and alternative sources of funding, individuals with bad credit can still build a successful property portfolio.

The Challenges of Bad Credit

Bad credit can result from a range of financial issues, including late payments, defaults, bankruptcy, or excessive debt. Lenders use credit scores to evaluate the risk of lending money, and a low score often leads to higher interest rates or outright loan rejection. This can be especially frustrating for property investors who are looking for favorable loan conditions.

However, a poor credit history does not necessarily exclude someone from property investment. Lenders look at various factors beyond credit scores, such as income, job security, and the applicant’s current assets. Demonstrating financial responsibility with a solid, well-thought-out plan can make it easier to secure a loan, even with a less-than-ideal credit score.

Exploring Alternative Financing Options

If mainstream lenders reject your loan application, several alternative financing options may help you finance your property purchase:

Non-Bank Lenders
Non-bank lenders are more flexible with their lending criteria and are willing to approve loans for borrowers with bad credit. While interest rates may be slightly higher, non-bank lenders offer a way to enter the property market when traditional banks turn you away.
Guarantor Loans
A guarantor, usually a family member, can increase your borrowing capacity and reduce the lender’s perceived risk. In exchange, the guarantor may be required to pledge their own assets as security. However, it’s crucial that both parties fully understand their obligations before proceeding.
Vendor Finance
Vendor finance is an arrangement where the seller of the property acts as the lender. Instead of relying on a bank, the buyer agrees to pay the vendor directly in installments. While this option is less common, it can be a viable solution for buyers struggling to secure traditional financing.
Joint Ventures
Partnering with someone who has strong financial standing can also be a good way to invest in property. Whether it’s a family member, friend, or business associate, a joint venture allows the financially stronger partner to provide the funding while the other party handles other aspects of the investment, such as property management or repairs.

Building a Stronger Financial Position

Improving your financial standing before applying for a loan can enhance your chances of approval and potentially result in better interest rates. Here are a few steps to take:

Reduce Outstanding Debt: Paying down credit cards and personal loans will improve your borrowing capacity.
Demonstrate Consistent Savings: A strong savings history shows lenders that you are financially responsible.
Make Timely Payments: Keeping up with all your current obligations, including credit card and loan payments, helps rebuild your credit.
Review Your Credit Report: Correcting any inaccuracies in your credit report can improve your credit score.

By taking proactive measures to strengthen your financial position, you’ll be in a better position to negotiate favorable terms with lenders.

The Role of a Mortgage Broker

Working with a mortgage broker who specializes in clients with bad credit can be highly beneficial. Brokers have access to a wide range of lenders and can identify loan options that are more suited to your unique financial situation. They also handle much of the application process, which can increase your chances of approval.

An experienced broker can also help structure your loan in a way that makes it more affordable and manageable, ensuring that your investment remains financially sound.

Key Considerations for Investing with Bad Credit

If you’re determined to invest in property despite your credit challenges, here are some important factors to keep in mind:

Choose the Right Property: Opt for properties in high-demand areas with strong rental returns. These properties can provide consistent cash flow and reduce the financial strain of your investment.
Avoid Overleveraging: Borrowing too much can lead to financial stress. Be sure that your property investment remains affordable and that loan repayments are manageable.
Have a Contingency Fund: Unexpected costs can arise, so having an emergency fund will help protect you from financial hardship in the event of unforeseen expenses.
Consider Loan Refinancing: As your credit improves, refinancing your loan may allow you to secure better terms, lowering your overall costs.

Final Thoughts

While securing a loan with bad credit can be difficult, it’s not an insurmountable barrier to property investment. By considering alternative financing options, improving your financial standing, and seeking professional guidance, you can still build a successful property portfolio. With careful planning, disciplined money management, and a strategic approach, property investment remains a viable option, even with a poor credit history.

Frequently Asked Questions (FAQ)

Can I invest in property with bad credit?
Yes, it is possible to invest in property with bad credit. While traditional lenders may be hesitant to approve your loan, alternative financing options like non-bank lenders, guarantor loans, and joint ventures can help you secure the necessary funding.
How can I improve my chances of getting a loan with bad credit?
To improve your chances, focus on reducing outstanding debt, demonstrating consistent savings, and making timely payments on current financial obligations. Reviewing and correcting your credit report can also improve your score.
What are non-bank lenders?
Non-bank lenders are financial institutions that offer loans outside of the traditional banking system. They may be more flexible with their lending criteria, making them a good option for individuals with bad credit.
What is vendor finance?
Vendor finance is when the seller of a property provides financing to the buyer directly, instead of the buyer obtaining a traditional mortgage from a bank. This option is less common but can be a viable solution for buyers struggling to secure a bank loan.
Should I work with a mortgage broker?
Yes, working with an experienced mortgage broker can be very helpful, especially if you have bad credit. Brokers have access to a range of lenders and can help you find financing options that suit your specific financial situation.

In conclusion, while investing in property with bad credit can present challenges, it’s certainly achievable with the right strategies, financial planning, and professional advice. By exploring alternative financing options and taking steps to strengthen your financial position, you can still enter the property market and work toward building a successful portfolio.

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How to buy a property with a low deposit

House prices continue to decrease from their highs of one to two years ago, but they remain significantly high in the most sought-after areas. According to CoreLogic, the median house prices of the two biggest cities – Sydney and Melbourne – stand at $1. 05 million and $775,000 respectively as of September 30, 2022.

The 20% deposit requirement has made it increasingly difficult for first-time home buyers to break into the market. However, don’t despair! Here are five ways to purchase a property without having to come up with a 20% deposit.

Get family or friend support: If your parents or other relatives cannot give you money for the deposit, they may agree to guarantee some or all of your loan with the bank. This allows them to help you increase your borrowing power without needing to front any cash, if you meet all lenders’ conditions.
Purchase a smaller home or consider alternative options: Saving for the 20%, for a property with three or more bedrooms, two bathrooms and a large front/back yard can be unrealistic for many. To get into the market, purchasers may want to consider alternatives such as caravans or tiny homes in order to get out of the renting trap and put potential savings to use.
Manage expectations: Many people have anxiety when looking to purchase a property. To make it easier, purchasers may think about compromising on certain features or including a “fixer upper” as part of their purchase. Doing so enables them to own their own place and makes it easier to do renovations at their own pace.
Find the right location: Location is key when purchasing property. If you don’t need to be geographically close to your workplace, you can use the additional flexibility to consider more rural or regional locations that might be more affordable.
Take advantage of the Home Guarantee Scheme (HGS)

The Home Guarantee Scheme (HGS) is an Australian Government initiative to support eligible home buyers to purchase a home sooner. The Scheme is administered by the National Housing Finance and Investment Corporation (NHFIC) on behalf of the Australian Government.

The HGS includes:

The First Home Guarantee (FHBG) – to support eligible first home buyers to buy their first home sooner, with a deposit as little as 5%. 35,000 places are available each financial year
The Regional First Home Buyer Guarantee (RFHBG) – to support eligible regional first home buyers to buy a home in a regional area. From 1 October 2022, 10,000 places are available each financial year to 30 June 2025
The Family Home Guarantee (FHG) – to support eligible single parents with at least one dependent child to buy a home, with a deposit as little as 2%. 5,000 places are available each financial year to 30 June 2025.
The New Home Guarantee (NHG) is no longer available. A NHG place reserved on, or before 30 June 2022, will still be able to progress to settlement, subject to meeting eligibility criteria and NHG requirements and timelines.

To discover more about the HGS, you can visit: https://www.nhfic.gov.au/

Buying property without the 20% deposit can be a daunting barrier to first-time home buyers. However, by taking into account the above strategies, purchasers can break into the property market and secure their dream home. To be eligible you must be a genuine first home buyer and earn no more than $125,000 as a single person or $200,000 as a couple.

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Non-bank home loans

When it comes to getting a home loan in Australia, you’re spoilt for choice. You could approach some of the big banks or the smaller, customer-owned banks or credit unions, and there is also a good selection available from non-bank home loan lenders.

Despite this breadth of choice, the big four banks – ANZ, the Commonwealth Bank, NAB and Westpac – dominate the mortgage market. They account for about three-quarters of the nation’s owner-occupier home loans, as listed by the Australian Prudential Regulation Authority (APRA).

But that list doesn’t include all lenders including non-bank lenders. Yet, despite them not being household names, you may find a mortgage with the rate, features and flexibility you’re looking for among Australia’s non-bank home loan lenders.

What is a non-bank lender?

Non-bank lenders are financial institutions that offer home loans and other credit products without being a bank. Non-bank lenders do not hold an Australian banking licence, meaning they cannot offer deposit accounts such as savings accounts, transaction accounts and term deposits.

It also explains why non-bank home loan lenders are not classified by APRA as authorised deposit-taking institutions (ADIs), but rather as non-ADIs. Just because a non-bank (or non-ADI) doesn’t offer cash accounts doesn’t mean it can’t provide a good value home loan – and more home buyers are beginning to recognise this.

The Reserve Bank of Australia (RBA) says non-bank lending has grown rapidly and in April 2022 non-bank home loan lenders collectively notched up growth close to a decade-long high of around 20% (on a six-month-ended annualised basis). That said, the RBA adds that non-banks still account for less than 5% of the overall home loan market.

Do non-bank lenders have lower home loan interest rates?

Interest rates vary across all home loan lenders – both banks and non-banks – so it can make sense to shop around and compare rates for a wide cross-section of lenders.

As a general guide, among the non-bank home loan lenders on the Canstar database, the average variable home loan rate was 4.26%, at the time of writing (see table below). That’s 0.62 percentage points less than the average variable rate among ADI lenders (remember, these are financial institutions that can accept cash deposits).

Average variable and fixed home loan rates ADIs vs non-ADIs

Lender type	Variable	1 year fixed
ADI	4.88%	5.04%
Non-ADI	4.26%	5.28%

Source: www.canstar.com.au – 20/09/2022. Based on owner occupier home loans on Canstar’s database available for a loan amount of $500,000, 80% LVR and principal and interest repayments, excludes introductory and first home buyer only loans.

A rate difference of 0.62 points may not sound like much, but on a typical home loan of, say, $500,000 repaid over 25 years, it can reduce monthly repayments by $177, according to Canstar’s mortgage calculator. That provides a long-term interest saving of almost $53,000.

The picture changes, though, if we look at fixed rates. Among ADI’s the average 1-year fixed rate is 5.04%, which is 0.24 points below the average of 5.28% across non-bank home loan lenders.

This reinforces the value of casting your net wide and looking at what’s available from a variety of lenders.

How safe are non-bank home loan lenders?

In Australia, we are fortunate that both banks and non-bank home loan lenders are carefully regulated. ADIs are regulated by APRA. Non-bank home loan lenders, on the other hand, are regulated by the Australian Securities and Investments Commission (ASIC) and the National Credit Code.

It means non-bank lenders need to have an Australian Credit Licence to provide home loans, and they must abide by the same rules and regulations as ADIs in terms of making responsible lending decisions.

What types of home loans do non-bank lenders offer?

Non-bank lenders typically offer the main types of home loans, which we’ve outlined below. Other types of loans such as bad credit home loans for borrowers who may have a poor credit score, or low doc home loans often pitched at self-employed people, may be available from niche providers.

Basic home loans

Basic home loans can be variable rate loans or fixed rate loans and they are exactly what the name suggests – basic, with fewer bells and whistles in terms of loan features.

Standard full feature home loans

Full feature home loans also come in either variable or fixed rate form, but they can have added benefits that may include offset accounts, redraw facilities and the ability to make fee-free additional repayments.

If you’re wondering how non-bank home loan lenders can offer offset accounts when they are not licensed to take cash deposits, part of the answer is that many team up with an ADI to provide the linked offset account with a government guarantee. But it’s extremely important to understand how a non-bank lender’s offset facility works before committing to the loan and keeping cash stashed away in the offset account. For example, with a non-bank lender, money held in a an offset facility may not be protected by the government’s Financial Claims Scheme.

Split rate home loans

A split rate home loan involves splitting your loan into two components, one with a fixed interest rate and the other with a variable rate. In this way, split loans can give you the best of both worlds – the certainty of a fixed rate and the flexibility and features of a variable rate loan.

Where do non-banks get their funding?

Both bank and non-bank lenders access wholesale money markets to raise the funds needed to provide home loans. This is essentially banks lending to one another.

Banks can also access their own customers’ deposits to lend out as home loans, but strict rules apply around how much of these savings can be lent out. Non-bank lenders may also use a process called ‘securitisation’ to raise funds for home loan lending. In simple terms, this means investors provide the capital to lend out as a mortgage.

The upshot is that banks and non-bank home loan lenders can use a variety of funding sources for home loans.

What happens if a non-bank home loan lender goes bust?

If a non-bank home loan lender went broke, your home loan wouldn’t suddenly disappear into the ether.

A possible chain of events would be that another bank or non-bank would purchase your lender’s portfolio of home loans. From your perspective it would likely be business as usual in terms of making repayments, or there is always the option to refinance the home loan with a new loan and lender.

As mentioned above, it’s important to understand how your non-bank lender’s offset facility works (e.g. is it backed by another bank covered by the Financial Claims Scheme) so you know what could happen to any funds held in an offset facility if the lender goes out of business.

Source: Canstar

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What should I do when my fixed rate ends? Refinancing your home loan

Fixed interest terms on home loans don’t last forever, so it’s inevitable that you’ll have to decide what to do when yours ends. Do you want to opt for another fixed term? Switch to a variable interest rate? How about a split rate home loan? If your fixed term is ending soon, now is the time to review your home loan, and look for a better deal.

If you don’t do anything nearing the end of your fixed term, your home loan will usually revert to your lender’s standard variable rate. Variable rates after the fixed rate ends tend to be much higher than usual. This is because lenders know that some people won’t be bothered to switch lenders at this point meaning that you end up paying a loyalty tax.

At this point you can sit on this rate for however long you like, but you may be able to get a more competitive interest rate if you look into your lender’s other options or refinance with a new bank.

Your lender will usually allow you to refix your home loan, but you want to make sure that you’ll be locking in a competitive interest rate. If you’d like some interest rate stability but don’t like the idea of locking yourself into a rate for years, you could pick a 1-2 year fixed rate or even consider a split loan.

Alternatively, finding a low variable interest rate could be beneficial. Variable rate mortgages come with a lot of flexible advantages, including loan features and unlimited extra repayments.

Can you extend a fixed rate mortgage?

You are unlikely to be able to extend a fixed rate mortgage at its current set interest rate. However, you can definitely fix your home loan again at an up-to-date rate. While it’s typical to have a fixed rate period of 1-5 years, some lenders offer terms of up to 10 years for those who just prefer to set their home loan rate and not worry about it.

The main risk of having a long-fixed term is that you could miss out on interest rate cuts if the cash rate drops during your term. But, if interest rates rise, you’ll be protected from increases until your fixed term is over.

Another thing to remember is that fixing your interest rate isn’t a great idea if you plan to sell or renovate your home using equity from the property within the fixed period. Fixed rate mortgages also come with a lot of restrictions, meaning that you often can’t make unlimited extra repayments or utilise loan features like an offset account.

What is the penalty for breaking a fixed rate home loan?

If you don’t want to wait until your fixed term expires before you refinance or overpay on your home loan, you are likely to incur break costs. Break costs are charged by lenders when borrowers do something to ‘break’ their fixed rate loan terms, for example:

Refinancing/switching to a new home loan or lender
Paying off your home loan early
Making extra repayments that exceed any caps set by your lender
Selling your home during the fixed period (without loan portability)

Exactly how much you are charged will depend on your lender, loan amount and the state of the market. Typically break costs are calculated based on:

The amount of time left in the fixed term
The difference between the lender’s cost of funds now versus when the loan was initially settled
If you’re thinking about breaking your fixed rate home loan, speak to your lender about how much you could be charged in break fees to see if it will be worth it.

If you have a variable rate home loan, you won’t be charged break fees for doing these things. Try to plan ahead and think of what interest rate type would best suit your circumstances, or even consider a split rate mortgage.

Switching to a variable interest rate after your fixed term ends

After your fixed period ends, you should have a good idea of how fixed rate mortgages work and whether you would be happy proceeding with an additional fixed term. If you found your fixed rate home loan a bit constricting or you’d like to try something different, you could look into switching to a variable rate mortgage.

A variable rate mortgage will usually come with a lower interest rate, but this interest rate can and will fluctuate depending on the RBA cash rate and your lender’s financial situation. Some other features of a variable mortgage can include:

Access to more loan features such as offset accounts, redraw facilities and loan portability
Ability to make uncapped additional repayments
When the cash rate drops, your interest rate will likely also decrease (and vice versa)
Easier refinancing

Luckily, there are no penalties associated with refinancing from a variable rate. So, if you end up missing your fixed rate stability, you can switch back with little hassle. Alternatively, a split rate home loan is another option.

A split loan means that one portion of your loan balance has a fixed interest rate, while the other is on a variable interest rate. This way, you get the best of both worlds and the split doesn’t even have to be 50:50.

EXCLUSIVE OFFER TO OUR READERS! Claim your free no obligation Finance/ Loan Health Check

If you aren’t sure how to proceed after your fixed period ends, it might be a good idea to chat with a mortgage broker to discuss your options. You can arrange a free 15 minute no obligation chat with our in-house mortgage broking team to discuss your options.

Please arrange an appointment with our office here.

https://www.camdenprofessionals.com.au/finance/

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How to avoid being rejected when you refinance

Want to refinance your mortgage but worried you’ll be rejected? At Camden Professionals Finance we have put together a list of factors you should consider. Why do some lenders reject applications to refinance mortgages?

Your credit score is too low

When you apply to refinance your loan, you’re essentially applying for a whole new mortgage. That means a lender will assess your loan application using the same criteria they would for other home loans. And one of the most important factors they’ll consider is your credit score.

Your credit score essentially marks you on how responsible you are with money and considers any credit infringements, judgements, or bankruptcies. All loans & repayments are now noted on your Credit file and affects the credit score if repayments have been missed.

It also looks at how often you’ve applied for credit and whether you’re meeting your credit card and personal loan repayments on time. Your credit score changes over time, so chances are yours will be different now to when you took out your current home loan. You should consult with your broker before applying for your new loan, if you believe that your credit score may affect your chances of refinancing.

If your credit score is holding you back, you can take steps to fix it yourself. That includes paying back any money you owe, making sure you meet your monthly repayments into the future and avoiding applying for credit other than your refinanced mortgage.

Your financial circumstances have changed

Whenever a lender assesses a loan application, they always consider your capacity to meet your loan repayments. This means looking at your income, including salary and bonuses as well as the money you receive from any investments. If you’re refinancing to buy an investment property a lender will factor in any likely rent, you’ll receive from this also.

If your income has dropped since you last applied for a home loan, you may not be able to borrow as much as last time – in which case, a lender may reject your refinance application.

If your circumstances have changed only temporarily – for instance, if you’re out of the workforce on parental leave or having a career break – you could give yourself a better chance of being approved by waiting until you return to work before you apply to refinance.

Alternatively, if your income has reduced permanently, you may be able to extend the terms of your loan to reduce your loan repayments. Because you’ll likely be better able to meet these repayments, this may also improve your chances of being approved.

Your living expenses are too high

Lenders won’t just look at what’s coming into your bank account – they’ll also consider what’s leaving it. If your living expenses are high, this will affect your ability to get a loan. Lenders will be especially concerned about any non-negotiables you need to pay for, including the cost of raising children. So, if you have more dependents than last time you applied for a loan, they’ll take this into account.

They’ll also assess what you’re spending on items such as childcare, ongoing rent, education, utilities, and entertainment. To avoid a refinancing rejection, it’s important that you live within your means and cut back on unnecessary expenses if you need to.

You have too much debt

For any lender, assessing what’s leaving your bank account involves more than simply assessing your living costs. They’ll also factor in any other credit you have access to, including personal loans and credit cards – even if you don’t owe anything on them.

To help avoid being rejected, you could close down any credit cards you’re not using. You may also choose to consolidate any personal loans or credit card debt into your refinanced home loan so that you don’t have other high-interest debt outside of your mortgage.

Your LVR is too high

One of the most important factors a lender will consider when you apply to refinance your home loan is your loan-to-value-ratio. LVR. If you’re refinancing to buy an investment property, your LVR will go up, as any equity you have in your home will now be used to secure two properties. If the market has dropped since your last application and you haven’t paid off much of the loan principal, your LVR may have risen too.

If the LVR on your refinance application is too high, a lender may reject your application or ask you to take out lenders mortgage insurance (LMI).

The importance of understanding the refinancing process

It is important to understand the refinancing process and have a good idea of how much you can afford to borrow. A mortgage broker can also help maximise your chances of being approved by helping you get your application in order and making sure you apply to the most appropriate lender for your circumstances.

You should contact our office and chat to our in-house finance team to find out how you could avoid being rejected when you are seeking to refinance.

EXCLUSIVE OFFER TO OUR READERS! Claim your free no obligation Finance/ Credit Health Check

You can arrange a free 15 minute no obligation chat with our in-house mortgage broker to discuss your options. We can also undertake a free check of your credit file.

Claim you Free, 15 Minute Financial Health check by completing our contact form here.https://www.camdenprofessionals.com.au/finance/

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How to avoid being rejected when you refinance