Home LoanRefinancing vs. Home Equity Loans: Which Is Better for You?

May 13, 2024

Before choosing what’s the best for you, you need to understand what is refinancing and home equity loan.

What is Refinancing?

It refers to the procedure of revising and changing the terms of an existing credit agreement for loans or mortgages. When a business or an individual makes up his mind to refinance a credit agreement, they effectively look at making pleasing changes to the rate of their interest, payment scheme or other terms mentioned in their contract. Once approved, the borrower receives a new contract that replaces the first agreement.

Home Loan Refinancing Guide

A standard rule is that homeowners should think about refinancing every three to four years to male sure that they are getting the best option possible. It’s not a secret that banks often give better interest rates to new customers than existing ones. With banks providing refinance kickback and waived application fees, it is a beneficial practice to consider refinancing. Here’s the refinancing process:

  • Understand why there is a need to refinance

    First, buyers should have understood why they’re refinancing. Be it to get a better interest rate or to lessen your monthly repayments or to gain some fairness for their property. Knowing this first thing will make it easier for them to recognize the outcome you are looking for and the home mortgage product that best suits them.

  • Study the refinancing charges

    There are several fees buyers need to take note of when refinancing which in total can be anywhere between a few hundred to a few thousand dollars. The refinancing fees differ depending on the lender the buyers work with and the mortgage product they qualify for. So, buyers need to carefully check whether refinancing makes financial sense to them. Banks are always a competitor for each other to bait good borrowers with lower interest rates, refinance kickbacks, waive loan application and set up fees.

Tip: Refinance kickbacks are a very good way to equalise the primary cost of refinancing and to save the difference.

  • Get your documents prepared

    Ensure all necessary documents are ready for a smooth refinancing process.

  • Consider multiple lenders through a broker

    Speak with a home loan refinancing broker for the needs and current situation of your refinancing decision. Brokers can give you new lender choices depending on your needs and financial state. They will also advise you if the new lender gives refinance kickback offers.

Home Equity Loans

Home equity loan lets homeowners borrow from the equity of their home. This is because numerous lenders value ‘safer’ clients with higher built-up equity as they show less of a financial risk than high LVR clients. The thing is, the more of your home you own, the more security you have accrued up for the loan.

Factors Affecting Home Equity Loan Approval

In view of the factors that affect the approval of a home equity loan and for any loan basically, the very first thing that your financial company will look into is your creditworthiness, if you can pay back the loan. Here are the basic factors they consider:

  1. Income and Employment

    Your income and employment are the number one factors that will greatly affect your chances to get home equity loan approval. You will want to express how long you have been working and how much money you have for your household. This factor ultimately shows your lender if you can pay back your loan over time. Now, if you are self-employed, be ready to give out proof. Mostly, lenders need to see your personal and business tax returns usually within the last two years. They will also look for a profit and loss statement. Whether self-employed or not, you can also add child support income or livelihood payments as additional income if this applies to you.

  2. Current Mortgage

    Your present mortgage will also supply important information – and again a crucial factor of your chances to get approved for a home equity loan in Sydney. Depending on where you have your first home loan in Sydney and how long your mortgage is will actually depend on the information needed.

  3. Asset Information

    Collecting your bank statements is your first task for accumulating asset information. Then, have records of all other assets like your retirement accounts, stocks and bonds and other real estate you might have. This really starts to show your capability to show your lender you can pay back your loan over time.

  4. Liabilities

    Now that you have shown your lender what you have, you’ll also need to show your lender your liabilities. Mostly, your liabilities will include other loans you have like credit card debt and other payments you make monthly. If you pay child support or upkeep, you need to make sure to show these payments as a liability as well.

  5. Credit Standing

    Your credit standing will tell your lender the most about you, do you have a reputation for paying your bills? Based on your credit standing, will your lender see that you can pay back the loan? Most of the time, there can be cases on a credit report from college days or misunderstood bills.

Choosing Between Refinancing and Home Equity Loans

Choosing between home loan refinancing and home equity loan relies on your financial needs as a homeowner but if the goal is to lessen your home loan payments or update the terms of your loan, refinancing will be the best. But if you need a large amount of money for a specific purpose and prefer predictable payments more, a home equity loan will be the way to go.The expenditures, risks and their lifelong financial plan are to be considered before making a choice.

Home Loan Assistance with Australian Financial and Mortgage Solutions

With years of experience in the real estate industry, Australian Financial and Mortgage Solutions possesses a team of financial professionals who are experts in the home loan refinancing. Our financial experts and brokers are updated with market trends, regulatory updates and new strategies to make sure buyers receive the current and specialised advice.

Are you ready to take control of your home refinancing journey? Partner with Australian Financial and Mortgage Solutions today and get on a journey towards greater stability and convenience. Contact us now to schedule a consultation with one of our advisors and discover how home loan refinancing can transform your life. Don’t let good deals slip away, contact AFMS now!