How to Refinance and Access Equity for Your Business

Understanding Equity Release Through Refinancing

For business owners across the Mornington Peninsula, accessing capital to grow or sustain operations can be challenging. One solution that's often overlooked is refinancing your home loan to release equity stored in your property. This strategy allows you to tap into the value you've built up in your home to fund business expansion, purchase equipment, or manage cash flow.

When you refinance to access equity, you're essentially taking out a new home loan that's larger than your existing mortgage. The difference between the two loan amounts becomes available as cash, which you can direct towards your business needs. This approach can be more cost-effective than traditional business loans, as mortgage refinancing typically offers lower interest rates compared to unsecured business funding.

Why Consider Refinancing for Business Capital?

Many Mornington Peninsula residents have built substantial equity in their properties over time. Rather than leaving this wealth locked away, a cash out refinance allows you to put it to work. Here are several reasons why this approach makes sense:

• Access to lower interest rates compared to business loans or credit cards
• Potentially access a better interest rate than your current home loan
• Longer repayment terms that can improve cashflow
• One consolidated repayment instead of multiple business debts
• Tax advantages when using funds for income-producing purposes

If you're coming off a fixed rate period or stuck on a high rate, this could be an ideal time to review your options. A loan health check can reveal whether your current mortgage is working as hard as it should be for you.

When to Refinance Your Home Loan

Timing plays a crucial role in determining whether refinancing makes financial sense. Consider these situations:

Your Fixed Rate Period is Ending: If your fixed rate expiry is approaching, you'll likely face a significant rate change. This transition point is an excellent opportunity to reassess your entire loan structure and potentially unlock equity simultaneously.

Interest Rates Have Dropped: When variable interest rates or fixed interest rates decline, you might save money refinancing to a lower rate while also accessing equity for your business.

Your Property Has Increased in Value: Property valuation increases mean you may have more equity available than you realise. The Mornington Peninsula has seen considerable property growth, making this particularly relevant for local homeowners.

Business Opportunity Arises: Sometimes opportunities don't wait. If you need capital quickly for expansion, stock purchase, or to take advantage of market conditions, releasing equity in your property can provide fast access to funds.

The Refinance Process for Equity Access

Understanding the refinance application process helps you prepare and move forward confidently:

1. Property Valuation: Your lender will assess your property's current market value to determine available equity
2. Loan Review: Evaluate your existing loan amount and calculate how much equity you can access
3. Compare Refinance Rates: Research current refinance rates across different lenders
4. Consider Loan Features: Look at refinance offset account options, refinance redraw facilities, and other features that suit your needs
5. Submit Application: Complete your refinance application with supporting documentation
6. Settlement: Once approved, your new loan settles and equity funds become available

Working with experienced mortgage brokers like Bayland Finance can streamline this process significantly. Our team understands the specific lending landscape across the Mornington Peninsula and can help you access equity efficiently.

How Much Equity Can You Access?

Most lenders allow you to borrow up to 80% of your property's value without requiring lenders mortgage insurance. Some will lend up to 90% or even 95%, though this typically involves additional costs.

For example, if your Mornington Peninsula property is valued at $800,000 and you owe $400,000 on your existing mortgage, you have $400,000 in equity. At an 80% lending ratio, you could potentially borrow up to $640,000, meaning you could access $240,000 for your business while maintaining that 80% threshold.

These calculations depend on various factors including your income, existing debts, and the lender's assessment criteria. Our team can help determine your specific borrowing capacity.

Refinancing Options: Fixed vs Variable

When you refinance your mortgage to access equity, you'll need to decide between interest rate structures:

Variable Interest Rate: Offers flexibility to make extra repayments and access features like offset accounts. Rates can move up or down with market conditions.

Fixed Interest Rate: Provides certainty with locked-in repayments for a set period, protecting you if rates rise. However, you may have limited ability to make extra repayments.

Split Loan: Combine both by splitting your loan amount between fixed and variable portions, balancing security with flexibility.

Your choice depends on your business plans, risk tolerance, and market outlook. If you're concerned about paying too much interest, securing a lower interest rate through refinancing can reduce loan costs substantially over time.

Beyond Just Accessing Capital

While releasing equity is your primary goal, refinancing presents other opportunities:

• Consolidate into Mortgage: Combine existing business debts or personal loans into your home loan at a lower rate
• Switch to Variable or Switch to Fixed: Choose the rate structure that aligns with your current circumstances
• Access Better Features: Modern home loans offer refinance offset accounts, flexible repayment options, and other tools that weren't available when you first borrowed
• Save Thousands: Even a small reduction in your interest rate can save thousands of dollars annually

A comprehensive refinancing strategy considers all these elements, not just equity release.

Tax Considerations for Business Owners

When you access equity to invest in your business, the interest on that portion of your home loan may be tax-deductible as a business expense. This is a significant advantage that makes the effective cost of borrowing even lower.

However, it's crucial to keep the business portion of your loan separate for accounting purposes. Speak with your accountant about structuring your refinance correctly to maximise tax benefits while maintaining compliance.

Working with Mornington Peninsula Mortgage Specialists

At Bayland Finance, we understand that business owners face unique financial challenges. Our team has helped numerous Mornington Peninsula residents unlock equity in their properties to fund business ventures, from retail expansions in Mornington and Rosebud to service businesses across Mount Eliza and Frankston.

We can also assist with dedicated business loans if that proves more suitable for your circumstances, or help structure SMSF loans if you're considering property investment through your self-managed super fund.

The mortgage refinancing process doesn't need to be complicated. With professional guidance, you can move from your current home loan to a new structure that not only provides business capital but potentially offers a lower interest rate and improved features.

If your fixed rate period is ending, or you simply haven't reviewed your home loan in several years, now is the time to explore your options. The difference between staying with an outdated loan structure and refinancing to a modern solution can save you thousands while providing the capital your business needs to thrive.

Call one of our team or book an appointment at a time that works for you to discuss how refinancing can unlock your property's equity for business growth.