Refinancing. It’s a common way for homeowners to secure better loan terms. Also to reduce interest rates or access equity. But what if your property’s value has declined? Can you still refinance? Or will lenders reject your application?

This can make refinancing more challenging. But not necessarily impossible. Lenders consider various factors. Want the best results? Work with a refinance mortgage broker.

How Property Value Affects Refinancing

Your home’s market value gets reassessed when you switch loans. This is to determine how much equity you hold. Has your home value dropped significantly? Then it reduces your available equity. Lenders use this information to calculate your LVR.

What if You Have Negative Equity?

Check your mortgage balance. Is it greater than your property’s current market value? This means you have negative equity. Most lenders wouldn’t approve refinancing in this situation. As it increases their risk. However, some banks or specialist lenders may still consider your application if:

• You have a consistent repayment history with no missed payments.
• Your income has increased. Improving your ability to manage repayments.
• You’re refinancing with your current lender. They may offer better terms.
• You can pay down part of the loan. This brings your LVR to an acceptable level.

Traditional refinancing not an option? Work with a refinance mortgage broker. They can help you explore lenders that offer more flexible solutions.

Any Downsides to Switching Loans When the Market Drops?

1. Increased LVR
   A lower property value increases your LVR. This can make your lender rethink approving your refinance. And what if it goes beyond 80%? You’ll need to pay LMI. Adding extra costs.
2. Stricter Lending Criteria
   Lenders assess risk based on LVR, income stability, and credit history. A drop in property value makes them more cautious, meaning you may face higher interest rates, tougher approval conditions, or additional fees.
3. Reduced Equity for Other Financial Goals
   People often refinance to access home equity for renovations or investments. A lower property value means you’ll have less available equity. Limiting your ability to borrow against your home.
4. Costs Can Outweigh Benefits
   Switching loans involves exit fees and valuation costs. Also new loan establishment fees. These expenses may cancel out any potential savings from refinancing. Especially if your property value has dropped.
5. Potential Credit Score Impact
   Applying for refinancing results in a credit inquiry. This can temporarily lower your credit score. It can also affect future borrowing power. Especially if you apply with multiple lenders and get rejected.

Weigh these risks against potential benefits before you switch your loan. A refinance mortgage broker can help you evaluate your options.

When Refinancing is Still an Option

Good news. You may still be eligible to refinance under certain conditions:

1. Your LVR Remains Manageable
   Is your LVR still within an acceptable range even if your home value declined? Lenders may approve your refinance. This is especially true if you have a strong financial profile.
2. You Have a Good Credit History
   A strong credit score. Good history of on-time payments. These can help offset the risk of a lower property value. This shows you have a proven track record of responsible debt management.
3. You’re Refinancing with the Same Lender
   Some banks offer internal refinancing options. These may not require a full property revaluation. Ask if your current lender is willing to work with you. This can be a straightforward way to secure better loan terms.
4. You Have a Stable Financial Position
   Has your income increased? Or did your overall debt decrease? Then you have higher chances of getting approved for refinancing. Lenders are more partial to borrowers with financial stability.

Ways to Up Your Chances

Declining property value. This no doubt affects refinancing prospects. But there are steps you can take. Improving your chances along the way:

1. Reduce Your Loan Balance
   Making extra repayments before applying for refinancing can lower your LVR. Even small additional payments can reduce the total interest you pay over time. Helping you build equity faster.
2. Increase Property Appeal
   Repainting. Landscaping. Making minor improvements like these can positively influence property valuation. This won’t always lead to a major increase. But small upgrades can make a difference.
3. Strengthen Your Financial Profile
   A higher income, reduced debt, and a strong credit score. These can help you secure refinancing. Even if your home’s value has declined. Lenders assess overall financial health. Not just property value.
4. Explore Alternative Lenders
   Are mainstream banks unwilling to approve your refinance? Some non-bank lenders offer more flexible solutions. Or ask a refinance mortgage broker for help.

What to Do If It’s Not an Option?

Sometimes, your home’s lower value prevents you from refinancing. But there are other ways to manage your loan:

1. Renegotiate with Your Current Lender
   Ask your lender about modifying your loan terms instead. Some banks may offer rate reductions or extend loan terms. Doing so helps you manage repayments.
2. Make Additional Repayments
   If possible, focus on paying down your principal to improve your LVR. Over time, this can increase your chances of refinancing when property values recover.
3. Wait for Market Recovery
   Property values fluctuate. And waiting for the market to stabilise may improve your refinancing options. Keep an eye on trends. Doing so can help you determine the right time to apply.

Trust in the Right Refinance Mortgage Broker

Switching your loan when property values drop can be complex. But you don’t have to do it alone. AFMS Group helps homeowners explore their options. Finding tailored solutions that fit you best. Contact us today. Let’s discuss how we can help you refinance with confidence.