Property investors: Got your mortgage with a non-bank? This golden opportunity could save you thousands

Post by Kyle Moritz - Mortgage Adviser

With interest rates as high as they are, we’re all looking for ways to save money on mortgage costs.

And for property investors who have their mortgage with a non-bank lender, there’s prime opportunity at the moment to do exactly that.

For the first time in a verrrry long time, banks have opened up their books to like-to-like refinances (which is basically bank speak for refinances from non-banks).

As long as you’re outside your obligation to your current non-bank lender, and you have a good track record in terms of keeping up with mortgage payments, it’s a chance to nab yourself a better interest rate and likely save yourself a packet on mortgage costs.

So, here’s what you need to know.

Who’s eligible for a like-for-like refinance?

The big opportunity is for property investors who bought back when the market exploded a few years ago (or even before that) and had to go down the non-bank funding route because they didn’t meet bank LVR criteria. That said, it’s also a great option for owner-occupiers who have a non-bank mortgage as well.

As long as you’re outside any obligation to your current lender (i.e. you’re heading for a refix or rollover soon) and you have a clean bill of health on your existing mortgage (in terms of keeping up with payments), you’ll likely be eligible for a like-for-like refinance.  

You’ll have to go through the full application process and meet all the usual bank servicing requirements. Bank test rates on mortgages are running at about 8.95% right now, so that’s worth keeping in mind.  

What are the benefits of refinancing to a main bank?

The big benefit, obviously, is that bank rates are so much cheaper – usually 1%-1.5% below what you’ll get through any of the non-banks.

As long as you’ve got at least 20% equity in your investment property (LVR = 80% or less) you’ll be able to refinance to a main bank at market-leading rates. By that we mean negotiated rates than are even better than what’s being advertised.

Having less than 20% equity won’t stop you from being able to refinance to a main bank, but you’ll pay a premium rate until you can get your LVR down to that 80% threshold.

Once interest rates start to fall in the coming months, that should see house prices recover somewhat – helping you build up added equity – and once you’re at 80%, you’ll be able to get those top bank rates.

(It’s worth noting that even with that extra margin, bank rates are still going to be cheaper than what’s on offer through non-banks.)

Refinancing to a main bank lender will also get you access to a whole lot of other added benefits, like possible interest-only payment terms for property investors, which gives you a bit of space to focus on paying down your main mortgage instead.

Why has the opportunity come about?

For a long time, the main banks wouldn’t touch non-bank refinances.

Not because of Reserve Bank policy or anything – they just...wouldn’t do them.

These days, although banks rules for new purchases are the same (they’ll want to see an LVR of 65% or less on investment properties), changes in the market have meant they’re happy to be a lot more flexible when it comes to refinances.

That’s largely down to the fact that the market has slowed significantly – there’s not as much new lending coming through right now as there was a few years ago – so they’re looking at other ways to grow their market share.

If you think a like-for-like refinance could be an option for you, get in touch today to chat with one of our friendly mortgage advisers about making it happen.

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