If you’ve started a new job and you’re expecting a boost in your annual paycheque, you need to consider how this will change your needs when refinancing your home loan.
Just started a new job and thinking of refinancing? Or are you expecting a pay rise in the future? Your employment and earning potential is a key factor that a lender takes into account when reviewing your refinancing application. A change in your employment or income may also affect the type of home loan that you switch to.
Here’s some advice about how to refinance your mortgage if you’ve started a new job and/or you’re expecting an increased salary in the near future.
Can I refinance if I’ve just started a new job?
If you want to refinance your mortgage and you’ve just started a new job, you won’t be declined by default. The good news is that some lenders may approve your application if you satisfy all other eligibility criteria, such as income and asset tests, as well as a credit history check.
However, most Australian lenders prefer that borrowers have stable employment – that you’ve been in the same job for at least 12 months – as this represents a reliable source of income.
How you can up your chance of being approved
1. Have a contingency buffer
One way to boost your chance of being approved for a refinance application if you’ve just started a new job is to demonstrate that you have enough funds to cover the mortgage repayments. Ideally, you should have at least six months of mortgage repayments saved in the event that the job falls through. This demonstrates to the lender that you have the financial capability (and contingency buffer) to meet your mortgage commitments if things don’t go to plan.
2. Aim for full-time employment
If you’ve started a new role, your best chance of being approved for a refinance application is to be in a full-time position in an industry that you’re experienced in, as this illustrates that the probationary period is likely to be a success.
3. Be able to explain your job change
Your lender may be sceptical about why you needed to change jobs in the first place ,so it helps if you provide a detailed reason as to why you changed jobs (such as “higher salary” or “package benefits”).
What should I think about before refinancing?
Probation period. For most jobs in Australia, the probation period is three months. During this time, some lenders won’t allow you to apply for a new home loan, as they don’t view your employment as being stable.
Increased income. If you’re expecting a change in your income – such as a salary increase – this may change your mortgage needs as a borrower. You need to decide what kind of home loan features you’re looking for and how your increased earning potential can help you repay your loan sooner. You may want to consider taking out a loan that allows you to make additional repayments without penalty, or maybe you’d like to choose a lender that offers an offset account that can help you reduce the amount of interest payable on your home loan.
Tax implications. If you start earning more, you need to consider the tax implications of being in a higher tax bracket. Work with a trusted accountant or financial adviser to help you devise an effective tax strategy for your hard-earned cash. You may want to consider putting more money towards investments or your superannuation fund.
How you can go about refinancing
- Identify your needs. If you’ve started a new job, carefully consider how this new employment and associated salary will influence your lifestyle and borrowing needs. What features will you need from your new lender? Are you thinking of settling down and having a family? What are the consequences of being in a new tax bracket?
- Budget. With a new job and a higher salary, now is a good time to sit down with an accountant and financial adviser about how you can build wealth for the future. Refinancing is an effective strategy for many borrowers, but you should also think about other options, such as leveraging your super as a financial strategy.
- Speak to your bank. Most borrowers don’t realise that they can negotiate their interest rate with their existing lender. Your bank may be willing to negotiate a more competitive interest rate if you justify why you believe you should be entitled to a lower rate. However, if it’s a different loan type or features that you’re after, then it may be time to refinance.
- Calculate refinancing cost. It’s essential that you carefully estimate the refinancing cost. Remember that you may need to pay a discharge fee, which could range from $150 to $350 as well as government charges to exit your current mortgage. With your new loan, you’ll need to pay upfront costs such as application fees or legal fees charged by the new lender. You can use our switching cost calculator to get an estimate of your total refinancing costs. Remember to consult your accountant or financial planner to assist you with these calculations.
- Shop around. Speak with a mortgage broker to discuss the type of loan that will complement your borrowing needs. With an increased income, features such as a 100% offset account, the ability to make additional repayments and a redraw facility may take precedence over features that used to be important to you such as no ongoing fees.
Compare refinancing home loans
What information do I need to offer?
- Payslips. You’ll need to put forward at least two recent payslips to demonstrate your income.
- Employment contract. Your lender will need to see your contract of employment, which will outline the nature of your employment (full time, part time, casual) and your annual salary.
- Bank statements. You may need to provide recent bank statements to demonstrate that you have genuine savings to service the loan if your probationary period is unsuccessful.
- Assets. The bank may also request details of any other assets that you own such as shares or property.
Starting a new job can be an exciting and challenging time, so make sure you know how this may impact your mortgage refinancing needs. With increased earning potential, you may want to source a different home loan type with different features, such as a redraw and offset facility, and you may need to think about long-term wealth strategies.