Keystart is a transitional lender in the sense that that they actively encourage their borrowers to refinance with another lender as soon as they’re able to do so.
So, here’s everything you need to know when refinancing your Keystart home loan.
Why refinance your Keystart loan?
By refinancing your Keystart home loan, you can:
- Reduce the interest rate on your home loan by up to 0.5% to 1.10%.
- Turn your home into an investment property as Keystart does not allow this.
- Get your new home loan packaged with other financial services products to get a better deal such as credit cards, offset account or free 24/7 online redraw facilities.
- Pay off your home loan years earlier by essentially making the same repayment on the new home loan or reduce your monthly repayments to free up some cash.
When should you refinance a Keystart home loan?
You should refinance as soon as you’ve built up enough equity in your property and as soon as you can mainly because of Keystart’s high-interest rates among other reasons.
How high is Keystart’s home loan interest rate?
Keystart calculates the interest rate charged on their home loans by using the average of the standard variable rate of the four major banks namely, ANZ, Westpac, CBA and NAB.
That means their interest rates are often quite high compared to standard home loan rates. In fact, 95% of our borrowers get a discount well below the standard variable rate.
You can check out the current special interest rates on offer by our lenders here.
Which Keystart loans can we help you refinance?
- Low Deposit Home Loan: Yes.
- Rural Home Loan: Yes.
- Shared Ownership Home Loan: Only flexible shared ownership home loan can be refinanced.
- Access Home Loan: Only full ownership can be refinanced.
- Aboriginal Home Loan: Only full ownership can be refinanced.
How much equity do you need?
The main issue when trying to refinance out of a Keystart home loan is whether or not you have built up sufficient equity in your property.
Ideally, you want to have at least 20% equity in your property when refinancing so as to avoid paying thousands in Lenders Mortgage Insurance (LMI) fees.
However, as LMI is relatively inexpensive for a 90% home loan, it may be worthwhile to refinance to a lower rate when you owe 90% or less of the property value.
A 90% LVR home loan is acceptable to most lenders and is the sweet spot as far as LMI premiums go.
To be clear, you would still pay LMI however as LMI is relatively inexpensive for a 90% loan so you should be better off.
How much are you saving?
Let’s look at an example. A home buyer looking to purchase a $500,000 property with a 2% deposit ($10,000) takes out a Keystart home loan of $490,000 at an interest rate of say 4.94% p.a.
The monthly repayment will be $2,612 approximately, and over the life of the loan he’ll pay $940,495 in total.
Now, let’s take a standard variable rate (average SVR of the big four: 4.79%) less a 0.7% discount which is 4%. or just take an interest rate of 3.94% p.a.
At 3.94%, the total balance over the life of the loan is $836,070 at a monthly repayment of $2,322.
You’ll save $75,571 in interest and pay off your home loan 5 years and 10 months earlier.
This extra $300 ($290) a month can go towards paying off the loan faster and saving on interest.
Why are so many borrowers stuck with Keystart?
This has affected thousands of first home buyers due to the falling property prices in ACT, although the property market predictions for the next three years look hopeful.
It is for this reason that Keystart home loans work best in a rising property market.
Let’s consider the following scenario.
Joe buys a house in Perth (ACT) for $500,000 with a 2% deposit or $10,000 which forms his initial equity/contribution.
Since initially most of his mortgage repayments goes towards paying off the interest, it takes a while to build enough equity to be able to refinance.
Now if his house value were to fall by even 2%, Joe will essentially have no equity in the property.
The inverse is also true. As if Joe’s house value were to rise, he would quickly be able to build equity and refinance to a better interest rate.
How do I know when a refinance is worth it?
Generally speaking, when refinancing with the goal of getting a better rate on your home loan, you should be seeing the benefits of refinancing within 2 to 3 years of making the switch.
Please our home loan refinance calculator which will help you work out exactly how much you’ll save by refinancing your mortgage with another lender.
How much does it cost to refinance a Keystart loan?
Keystart like most lenders has fees attached when discharging a mortgage.
To workout the exact amount, you can simply call Keystart and request a ‘Payout figure’. It will include both the outstanding loan amount along with all the relevant fees associated.
You can do that by calling them on their customer hotline 1300 578 278, alternatively, you can email them at firstname.lastname@example.org.
You’ll need to fill in and submit Keystart’s Discharge of Mortgage Authority form .
They require a minimum of 10 business days to process a release request.
Can I refinance Keystart’s Shared Equity Scheme?
Only if the ownership structure allows for a refinance.
What should I do if I don’t currently have enough equity?
You can build equity either by making extra repayments into your home loan or if your property value rises.
Are you looking to refinance a Keystart loan?
Our mortgage brokers are experts in the credit policies of almost 40 lenders on our panel. As such we can usually find you a better deal.
Give us a call on 1300 889 743 or fill in our short assessment form to find out if you qualify for a refinance.