How do you refinance when your property has lost value or when you’re all out of equity?
Navigating a refinancing process without equity can be challenging but it’s not an insurmountable obstacle. Here are five helpful tips for those seeking to refinance when you’re all out of equity:
- Shop Around: Different lenders may offer varying valuations and terms. Therefore, it’s crucial to investigate various lending options to find the most favorable terms and valuation. Don’t restrict yourself to your current bank or lender. Exploring options with other financial institutions could potentially unlock more favorable opportunities for refinancing.
- Improve Credit History: A strong credit history can help to increase your chances of securing a successful refinance. Make sure to pay all your bills on time, even the smaller ones. Additionally, if you don’t have a robust credit history, consider getting a credit card and ensure you clear the balance each month.
- Understand Your Mortgage’s Features: Knowing all the features of your mortgage can significantly impact your refinancing process. While the rate is critical, it’s equally important to ensure you have a mortgage that offers flexibility. This enables you to draw down your loan and use that equity when necessary.
- Avoid Cross-Collateralisation when investing: When planning to refinance, steer clear of cross-collateralising your properties. This practice links the loan contracts of multiple properties together, leading to potential complications later on. For example, if one property appreciates in value and you decide to sell, the bank will revalue your entire portfolio, which could require you to invest any profits back into the loan to maintain an acceptable Loan-to-Value Ratio (LVR).
- Use a Professional: Given the complexity of refinancing, especially without equity, it’s advisable to seek the help of a finance professional. A mortgage broker or financial advisor can guide you through the process, ensuring you understand all the options available to you and helping you to present your financial situation positively to lenders.
By employing these tips and seeking professional advice, you can make informed decisions and successfully navigate the process of refinancing without equity.