Buying your first home on the Central Coast using a government scheme such as the 5% Deposit Scheme can help you get into your dream home much sooner. However, if you purchased your property several years ago and haven’t refinanced since, you could be spending more on your mortgage repayments than you need to.
A lot of first home buyers assume a government guarantee scheme locks them in with their current bank forever, but this isn’t true. You can refinance a government scheme loan or switch lenders without triggering unexpected costs or fees. Here’s everything you need to know about refinancing your scheme-backed loan.
Why it’s important to refinance your scheme loan
If you’ve been in your first home for a while, your financial situation has likely changed, and you’ve probably built up a good amount of equity. Equity is simply the share of your home you own outright compared to the bank, and it increases with every mortgage repayment but also when your property value rises. When your loan balance goes down, and your property value goes up, your Loan-to-Value Ratio (LVR) also improves. The lower your LVR gets, the safer you look to lenders, which means you can unlock better interest rates.
If you’re not currently a customer of Universal Mortgage Experts, who actively monitor and negotiate with your lender for a better rate, your current lender won’t automatically lower your interest rate just because you’ve been a loyal customer. This is why it’s important to reassess regularly to ensure you’re getting the best possible rate, especially if you’re on a government scheme loan.
How refinancing a government scheme loan works
Usually, lenders require a 20% deposit to avoid charging you Lenders Mortgage Insurance (LMI). The Government’s 5% Deposit Scheme bridges that gap by acting as a financial guarantor to the bank when you purchase a home with less than a 20% deposit, allowing you to secure your home sooner while waiving LMI.
You can refinance a government scheme loan, but how you refinance depends on your current equity position:
- If your equity is under 20%: You may be able to refinance it with another Participating Lender of the 5% Scheme, but it’s subject to conditions. If you refinance with a lender that’s not a Participating Lender, your home loan will lose the benefits of the Scheme.
- When you reach 20% or more equity: The government scheme naturally expires because you no longer need a guarantor. This means you’re no longer restricted to Participating Scheme Lenders and are free to switch to any lender on the market offering the best deal, completely LMI-free.
While being able to choose a loan from any lender is exciting, comparing interest rates, fees and features across dozens of banks can quickly get confusing; this is where a mortgage broker can help you.
How UME can help you refinance a government scheme loan
Navigating government scheme guidelines and bank requirements doesn’t have to be overwhelming. At Universal Mortgage Experts, our job is to simplify the process and give you clear, straightforward options without any pressure.
We’ll help you by:
- Checking your equity: We’ll assess your loan balance and arrange a free property valuation to see if the Central Coast market growth has pushed your equity past 20%.
- Running a free mortgage health check: We’ll compare your current rate against our participating lender panel to find a better deal at zero cost to you.
- Managing the transfer: We’ll handle the application, scheme paperwork, and bank admin on your behalf.
If you bought your home on a government scheme and are ready to refinance, talk to the team at Universal Mortgage Experts today.
Frequently asked questions about refinancing a government scheme loan
Does it cost money to use a mortgage broker like UME to refinance?
No. At Universal Mortgage Experts, our Mortgage Health Check and loan review services cost you absolutely nothing. Brokers are paid a commission by the lender you choose after your loan settles, meaning you get expert guidance without the bill.
How do I know if my home’s value has increased enough to reach 20% equity?
Property market growth and your monthly principal repayments both build your equity. A mortgage broker like Universal Mortgage Experts can order a free property valuation to calculate your current Loan-to-Value Ratio (LVR) and see if you’ve crossed the 20% threshold.
What happens to my government guarantee when I reach 20% equity?
Once your remaining loan balance drops to 80% or less of your property’s value, the government guarantee naturally expires. This means you no longer need a guarantor, and you can shop around with any bank or lender in Australia.
Are there costs involved in refinancing a government scheme loan?
Your current bank may charge a small discharge fee to close your old loan, and your new lender may have setup fees. Universal Mortgage Experts will conduct a free Mortgage Health Check to ensure your interest savings far outweigh any switching costs.
9 September
