Smart Refinancing Tips for Home & Business Loans in Australia

Smart Refinancing Tips for Home & Business Loans in Australia

Learn how smart refinancing options can help manage your home and business loans better amidst rising living costs.

While inflation peaked at 7.8 per cent last year, cost of living pressures are still being felt by consumers and small businesses alike. In the current environment it’s important to look at your outgoings, whether it’s your personal financial situation, or your businesses’ bottom line, and see if there are any areas you could possibly cut costs and create savings. One way to reduce personal, or business costs is to review your current borrowing arrangements.

A new record has been set for external refinancing, with more than $19.5 billion of loans changing lenders in November, new data has shown.i

Refinancing your home loan

When it comes to our personal finances, mortgage repayments are likely to be one of, if not the biggest expense we incur so it can make sense to review your loan and maybe replace it with one that offers better terms.

While the most obvious reason to refinance is to obtain a more competitive interest rate and reduce the amount you are paying, it’s important to consider other factors like whether you’d prefer fixed or variable, the term of the loan, the fees involved, as well as the features associated with any options you are considering (e.g. the capacity to pay the loan off sooner or offset your interest with your savings).

Before you go to refinance, check out what rates your lender is offering to new customers. Often, you may be able to negotiate a lower interest rate or more favourable loan features with your existing lender.

Refinancing can also make your life easier if you’re juggling a number of debts (e.g. personal loans, car loans and credit cards). Debt consolidation can help you by streamlining debt under your home loan, often at a lower rate of interest.

Benefits of refinancing for small businesses

For businesses it also might be time for a review of your borrowing situation to avoid paying more interest than necessary. This can help free up cash flow within the business, and it may even be possible to access the equity you have built up in your business, enabling you to invest the extra funds into hiring more staff, buying new equipment or other business needs.

You also might be using a loan product that no longer meets the needs of your business. For many small businesses, the funding arrangements they put in place early in the businesses’ development are still in place, even though they might not be the best fit a few years down the track.

If you offered a personal asset as collateral for a loan when you first started your business, the business may now have its own assets that can be offered and if so, refinancing might offer the opportunity to release the security over your personal asset. You may even find that refinancing can allow you to access the equity you have built up in your business over the years to fund expansion.

Business loan refinancing considerations

Costs involved in refinancing a business loan can include exit fees, valuation fee, settlement fee, government fees and more, which may offset the savings you would have earned with refinancing so make sure you weigh up the possible savings against the fees you’ll need to incur.

Be mindful that lenders will look at your credit history and score, and sometimes also your personal credit history as well as that of your business so prioritise your credit management. Applying for refinance will be recorded on your credit file, which can accrue if you make several applications that are not approved so be sure you meet the criteria for approval before putting in applications.

Processes and facilities to support your business cashflow and lending

Of course, in a time of inflationary pressure its more important than ever to have in place processes to manage your businesses’ cashflow effectively.

If you need greater assistance with your businesses’ cashflow there are also debt facilities that can operate in addition to a business loan. These include:

  • Business overdrafts
  • Business credit cards
  • Invoice finance (which allows businesses to borrow money based on their unpaid invoices)
  • Merchant cash advance (where a lump sum is provided upfront in exchange for a percentage of future credit or debit card sales)

Managing your lending can be challenging and there can be tax implications associated with business borrowing, so please get in touch if we can be of assistance.

i https://www.theadviser.com.au/broker/43888-all-time-high-november-housing-refinancing-hits-19-5b-abs

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Time-to-Refinance

Best Refinance Tips for Home Mortgages and Business Loans

Best Refinance Tips for Home Mortgages and Business Loans

Looking to refinance your home mortgage or business loan? Discover the top factors and potential benefits of refinancing. We'll look at key considerations for both mortgage holders and businesses to help you make the most informed decision.

With the cost of living continuing to rise, it can feel increasingly hard to make ends meet in terms of your personal finances, and it can also be challenging running a business in an inflationary environment. One way of combatting inflation is to reduce the escalating cost of borrowing by reviewing your current arrangements.

A new record has been set for refinancing, with more than $19.5 billion of loans changing lenders in late 2022.i If you’re feeling like it’s time you reviewed your borrowing arrangements – either from a personal or business perspective, here are a few things to consider.

Refinancing tips for mortgage holders

With rates on the rise, it makes sense to shop around for the best deal. That could mean replacing your existing home loan with another loan from either your current lender or a different financial institution.

If you are refinancing with your current lender, the process can be simpler as your lender already has all your information and it can be easier to renegotiate than switch to a different provider. You may also incur lower or fewer fees by sticking with your current lender, but this will vary according to providers and loans. External refinancing is generally a little more complex but gives you the opportunity to compare providers.

Things to consider when comparing providers and loans include:

Interest rates
Seeking out a lower interest rate is usually the first thing on people’s minds when they review loans and providers. But it’s important to weigh up other factors as well.

Timing
Fixed rate and introductory period loans can be lower to start with but generally revert to a standard variable rate after a predetermined period so it can make sense to review your situation before the fixed rate ends.

Loan term and payment frequency
Adjusting your loan term and home loan repayments could potentially save you money over the life of the loan.

Access to more loan features
Features such as an offset facility or splitting your loan may be appealing. Some lenders also offer cashback deals, although it is important to weigh up what the loan offers rather than be swayed by the promise of a cash give away.

Refinancing tips for small businesses

For businesses it also might be time to review your borrowing arrangements.

If you have a loan and your financial situation and credit score have improved over the course of your loan repayments, you might also be in a position to take advantage of a lower rate and more favourable terms than your current loan.

Some things to consider as a business include:

Consolidating existing debts
If you have multiple debts incurring high interest repayments it can also be beneficial to combine them into one loan at a lower rate.

Changing the loan amount or the term of the loan
It’s common for businesses to refinance to take advantage of the equity built up in their business and that may mean increasing their borrowings. If expenses are increasing or you are seeking greater cashflow you can refinance your loan amount to be repaid over a longer term and decrease your monthly repayments.

Removing a secured asset
If your home or another personal asset is being used as collateral for your loan and your business is now in a position to borrow without it, you may wish to consider switching from a secured to an unsecured loan.

There are also other ways of accessing finance as a business, including having an overdraft or invoice finance where money is loaned against unpaid invoices, that you may wish to explore.

It’s important to evaluate each method of borrowing or accessing finance and review your situation on a regular basis to ensure your arrangements suit your needs and that you are not paying too much in the way of fees and interest. If you are considering changing providers to seek a better deal, make sure you weigh up all the pros and cons of making the switch and the various deals on offer.

i https://www.theadviser.com.au/broker/43888-all-time-high-november-housing-refinancing-hits-19-5b-abs

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.