Flatter your finances

Ensure your assets look their best when you are up for a new loan.

As anyone who’s tried to get fit in a weekend can tell you, it doesn’t work. The same goes for trying to whip your finances into shape overnight.

It takes patience and a longer-term commitment. So, if you’re planning to refinance, but worried about being trapped in mortgage prison, give yourself time to get your ducks in a row.

Most lenders will review at least three months of activity on bank accounts and credit cards.

Allow yourself this window to get cracking on changes that will give you the best chance of landing a more competitive rate.

Do your homework

Open your thinking to lenders who have signalled they’re willing to help credit-worthy Australians bust out of mortgage prison.

At present, the Australian Prudential Regulatory Authority (APRA) dictates lenders should stress test loans on a 3 per cent serviceability buffer. So, if interest rates are 6 per cent, borrowers need to be able to demonstrate they could make repayments at 9 per cent. But, after a record run of rate rises, this relatively high bar has left many borrowers with no option to change lenders because they can’t bridge the buffer.

However, lenders are able to make individual exceptions and, as we hit what is probably the top of the rate cycle, several have flagged applying a lower buffer to approve borrowers with a solid credit history. Talk to your broker to find out which lenders may be willing to apply a modified buffer if it can reduce your repayments and improve your financial position.

Get your credit in order

This is a bit of a no-brainer. Pay down debt, avoid late payments and carry out a ruthless cull of rolling subscriptions. There are also some less obvious areas to tighten:

• Think about reducing your credit card limit. No matter what your current balance, your lender will consider your entire limit as debt – whether that’s $5,000 or $25,000 – when weighing up your assets and liabilities and your ability to service a loan.

• Keep credit inquiries to a minimum. When you apply for credit (this includes traditional loans and credit cards along with store cards and interest-free finance plans) it will usually prompt what’s known as a hard enquiry on your credit file. If lenders see too many of these they may wonder why. Are other lenders turning you down? Are you juggling debt with credit cards? As a guide, lenders generally like to see no more than two hard enquiries in six months. While your repayment history stays on your file for two years, credit inquiries and payment defaults remain for five.

Maximise your valuation

When you apply to refinance, one of the first things a lender will do is value your property. While this is commonly done using online data, more and more companies are opting for in person valuations to solidify their loan books.

This is a great opportunity for home-owners to maximise outcomes, particularly if they’re close to the 80 per cent loan-to-value ratio (LVR) threshold, where lenders’ mortgage insurance generally kicks in. Get started on budget improvements that can boost your valuation when you’re ready to apply. Why not:

• Give the garden some attention. Valuers say the biggest boosts come from adding street appeal or creating outdoor entertaining areas. An on-trend fire pit/barbecue area can be as simple as a couple of bench seats and some crushed gravel.

• Paint. Never underestimate the power of a fresh coat of paint. Focus on the facade. Inside, new specialist tile and laminate renovation paints can work wonders.

• Declutter. Presentation shouldn’t necessarily impact valuation, but valuers are people too and some admit it can be difficult to look past the mess.

• Get some paperwork together. Try not to overstep the mark and annoy valuers, but it may be helpful to prepare a small folder of documentation on any improvements made to the house. Include details on local schools if you’re in a high performing catchment.

Embrace boring

No one wants to be a killjoy, but when you’re planning to refinance it’s not a great time to book expensive holidays, have Uber Eats on speed dial, spend money on gambling apps or look for a new job. Stable work in a secure industry is music to the ears of lenders.

Download a digital conscience

Create a budget and use technology to help you stick to it. There are a host of personal budgeting apps that can be linked to multiple bank accounts to not only track spending, but automatically categorise it as well. At a glance you can see how much you’ve been spending, and on what.

It can be confronting but it’s also empowering, helping you understand where money is leaking. A few popular apps include Frollo, Buddy, Beem and Raiz.

Sticking a tracker on yourself will also make things easier when it comes time to apply for a loan, as you’ll already have an accurate record of your very sensible spending on hand.

Please get in touch anytime if I can help with advice on planning for your refinancing.