Being self-employed comes with plenty of benefits. Flexibility. Independence. The ability to control your income. But what about when it comes to refinancing a home loan? Those same advantages can work against you. Lenders often see self-employed borrowers as higher risk. That’s due to inconsistent income streams and complex financial records.
But that doesn’t mean refinancing is out of reach. What you need is the right preparation. Doing so can improve your chances of securing a better home loan in Sydney. Looking to reduce your interest rate? Thinking about consolidating debt? Or do you want to unlock home equity? Learning how lenders assess self-employed applicants is key.
Why Refinancing is More Complex for Self-Employed Borrowers
Self-earners are unlike salaried employees who receive regular paychecks. These individuals often have fluctuating income. And they may use tax deductions that lower their taxable earnings. This can be beneficial for tax purposes. But it can make proving income stability more difficult when applying for a new home loan.
The thing is lenders want reassurance you can meet repayments long-term. So, they often require more documentation. They may also impose stricter lending criteria. But, different lenders have different policies. Some are more flexible with self-employed applicants. Meanwhile, others prefer low-risk and traditional borrowers. Know what to expect. This can help you navigate the process more effectively.
Steps to Refinance Your Home Loan in Sydney When Self-Employed
1. Review Your Financial Position
Take an honest look at your financial situation before applying for refinancing. This includes:
- Income Stability – Do your earnings show a steady trend? Or do they fluctuate significantly? Lenders prefer borrowers with consistent income.
- Debt Levels – Do you have multiple debts? Consider reducing them before applying. As lenders assess your total financial commitments.
- Credit Score – A strong credit history increases your chances of approval. It may also help you secure a better interest rate.
Is your financial situation is less than ideal? Working on these factors first can improve your refinancing options.
2. Gather the Right Documentation
Self-employed borrowers typically need to present more paperwork. So prepare everything that’s required. Doing so can speed up the process. It can also strengthen your application. You’ll likely need:
- Business and personal tax returns (last two years) – These show your income and financial standing.
- Profit and loss statements – Essential for demonstrating business performance.
- Bank statements – Both personal and business statements help verify your income.
- ATO Notice of Assessment – This confirms your tax obligations are up to date.
Has your business been operating for less than two years? Your options may be more limited. But, some lenders offer low-documentation (low-doc) loans. These require alternative forms of income verification.
3. Compare Lenders and Loan Options
Not all self-employed applicants are assessed the same way. Some have more lenient criteria. Meanwhile, others require extensive documentation. When comparing loans, consider:
- Interest rates – A lower rate can mean significant savings over time.
- Loan features – Options like offset accounts or redraw facilities can improve cash flow management.
- Fees – Be aware of exit fees and application fees. As well as ongoing costs that could impact savings.
Speak to a mortgage broker. They can help you identify lenders specialising in self-employed loans.
4. Demonstrate Financial Stability
Lenders like borrowers who can show financial stability. They are more likely to approve your application. This includes factors like:
- Consistent or increasing income – Have your earnings been growing over time? Highlight this in your application.
- Strong savings history – Do you have money set aside? This demonstrates responsible financial management.
- Low debt-to-income ratio – Keep your debts manageable. This increases your borrowing capacity.
Provide a well-documented financial history. This reassures lenders you’re a reliable borrower.
Challenges – How to Overcome Them
- Irregular Income
Does your income vary month to month? Some lenders might be hesitant to approve your application. One way to address this is by showing income trends over several years. Or by providing additional supporting documents like long-term contracts. As well as invoices from repeat clients. - Tax Deductions That Lower Taxable Income
Many self-employed individuals take advantage of this. The downside is that it can make it appear like you earn less than you do. Is your declared income too low? Consider working with an accountant to present your financials. They can do so in a way that still reflects your earning capacity. - Strict Loan-to-Value Ratios (LVRs)
Lenders may impose lower LVRs for self-employed borrowers. This means you may need a larger deposit. You may also need more equity in your home. Is your LVR too high? Consider making extra repayments before refinancing. This increases your equity.
So When Does Refinancing Make Sense?
This isn’t the right move for everyone. But it can be beneficial in several situations:
- Lowering Your Interest Rate – Have market rates dropped? Or has your credit score improved? You might qualify for a better deal.
- Switching Loan Features – Move to a loan with an offset account. Or one with a redraw facility. Or one with flexible repayment options. These can provide financial flexibility.
- Accessing Home Equity – Has your property value increased? Refinancing can allow you to access funds for business investments. Also for renovations or other personal expenses.
- Consolidating Debt – Do you have multiple debts? Combine them into a single loan. This can simplify repayments. It can also reduce overall interest costs.
But, make sure to weigh potential costs.
Helping Self-Employed Borrowers Refinance
AFMS Group understands how complicated refinancing for self-employed individuals can be. Are you a business owner? Maybe you’re a freelancer? Our team specialises in finding home loan solutions that fit your needs.
Why Choose AFMS Group?
- Tailored Lending Solutions – We work with lenders who understand self-employed borrowers.
- Expert Guidance – Our team assists with document preparation. As well as lender negotiations to make refinancing smoother.
- Access to Competitive Loans – We help you compare offers to find the best rates. As well as loan features.a
Are you self-employed and considering refinancing your home loan in Sydney? Contact AFMS Group today. Let’s discuss your options.
