Benefits of a Home Loan Refinance for the Self-Employed
Are you thinking about a home loan refinance while self-employed? If so, you’re certainly not alone. With the official cash rate jumping to 4.35% off the back of 13 interest rate rises, many homeowners are feeling the pinch. This is especially the case for borrowers at the end of their initial fixed rate term (when the loan automatically rolls over to the lender’s standard variable rate).
Rather than put up with a substantial increase in their monthly repayments, people are instead choosing to refinance in record numbers. According to the latest data released by PEXA (an online property exchange network), refinancing activity increased during the 2023 FY by almost 14% nationally. In Queensland, there were 85,713 loans refinanced, an increase of 17.4%. And while it comes with some obvious benefits, refinancing when self-employed can present some unique challenges.
Self-Employed Home Loan Refinance Challenges
Home loan refinancing for self-employed people does involve some unique challenges. This mainly comes down to the basics: being able to prove you have a stable income, having the right documents and maintaining a good credit score.
- Proof of income: Lenders may be hesitant to approve refinancing for self-employed people who can’t provide proof of a stable income. If your cash flow is irregular, then some lenders may view your application as high risk (meaning they’re less likely to offer favourable terms and competitive interest rates).
- Having the right paperwork: Another self-employed refinance challenge is a lack of documentation. Lenders will be looking for copies of your business financial statements, business activity statements (BAS) and several years of completed tax returns. If you’re behind on lodging your paperwork, this could make it harder for you to refinance your home loan.
- Your credit score: Lenders may view mortgage refinancing for self-employed people as a higher-risk proposition. Because of this, they’ll be looking closely at your credit history and current credit score. A lower credit score can make refinancing more difficult.
However, self-employed home loan refinance challenges can be successfully overcome with a bit of planning and the assistance of an experienced mortgage broker.
Benefits of Home Loan Refinancing for Self-Employed People
Refinancing can offer a range of measurable benefits to self-employed people. It could help you to:
- Save money: One of the greatest benefits of refinancing when self-employed is that it can save you money. By securing a lower interest rate, you’ll be able to reduce your monthly repayments and free up cash for other personal or business use.
- Obtain greater flexibility: A good self-employed refinance tip to remember is to look for lenders who offer more flexible loan terms. Greater flexibility will allow you to customise your mortgage product to suit your needs. This could mean a shorter or longer loan term, depending on your financial situation.
- Access equity: Considering how property prices have increased across the state since 2020, it’s possible that your home now has considerable equity. Refinancing would allow you to access this equity, which could then be used for business investments, a renovation or even for the purchase of an investment property.
- Gain possible tax benefits: Mortgage refinancing for self-employed people can offer potential tax benefits. However, since individual circumstances may vary, it’s always a good idea to consult with a tax professional to see what kind of concessions may apply.
- Consolidate debt: If you’re currently finding it difficult to service multiple high-interest debts, then refinancing could be a great opportunity for debt consolidation. This offers a simplified debt management approach and may improve cash flow.
- Get access to better loan features: When you first applied for a home loan you may have found you were ineligible for (or perhaps just didn’t need) certain loan features. Now that your financial situation has changed, refinancing could give you access to redraw facilities, an offset account or a split loan with fixed and variable interest rate portions.
Refinancing when self-employed can offer clear benefits and be a useful tool for achieving your financial goals. If you think this could be beneficial for your current situation, then talk to a mortgage broker about your refinance options.
Talk to a Mortgage Broker About Refinancing When Self-Employed
There are obvious benefits to refinancing while self-employed. You could save money, consolidate debt, access valuable equity and gain greater financial flexibility. However, as with any major financial decision, it’s important to get professional advice before moving ahead. A mortgage broker can help you successfully navigate the complex process of refinancing.
The team at Professional Lending Solutions specialises in refinancing loans for self-employed individuals. We can help to assess your refinance eligibility, while also answering any questions you may have and identifying which lenders will be most likely to approve your application.