The critical aspect of refinancing a home loan is to establish the value of your property, which will act as the collateral against which your finance arrangements will be made.
Lenders tend to vary in their assessment methodology but usually apply the 80% Loan-to-Value Ratio (LVR) principle. This dictates the size of the loan based on the property’s current market value.
To establish the current value of your home, a valuer will typically be engaged. You can hire one independently, and your lender will also use their own valuation teams to validate the loan. A valuer will inspect the property to determine its condition and then use algorithms to collect a range of property and economic data to determine its value.
Be aware that bank valuations vary depending on each institution’s risk and lending criteria and so it’s common that your valuation can differ between different lenders. However, it’s fair to assume the figure will be the rock-bottom price you might expect to sell for in the current market conditions.
Importantly, please don’t confuse a valuer’s assessment with a real estate agent’s appraisal, which estimates what a buyer might pay for the property rather than what a bank should loan against the property.
Appraisals are usually higher than an independent valuation. That’s because agents consider recent local sales, the mood of the market and the price they believe they can achieve for the owner with a solid marketing campaign.
- This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.