Guide to Refinancing Your Home Loan for Education Expenses

Understanding Refinance to Access Equity for Education

As a self-employed professional or business owner, you understand the value of education - whether it's funding your children's university degrees, investing in postgraduate qualifications, or upskilling yourself to grow your business. But when school fees and course costs run into tens of thousands of dollars, where do you find the funds?

For many Australian property owners, the answer lies in refinancing their home loan to access equity. This approach allows you to tap into the wealth you've built in your property without having to sell it, making education expenses more manageable while keeping your investment strategy intact.

What Does It Mean to Release Equity in Your Property?

Equity is the difference between your property's current value and what you still owe on your mortgage. For example, if your home is valued at $800,000 and your loan amount is $500,000, you have $300,000 in equity.

When you refinance to access equity, you're essentially taking out a new, larger home loan that pays off your existing mortgage and provides you with additional cash. This process, sometimes called a cash out refinance, lets you unlock equity while potentially accessing a lower interest rate or improved loan features at the same time.

Why Consider Refinancing for Education Costs?

Education expenses can be substantial. University fees, accommodation costs, textbooks, and living expenses for students can easily exceed $100,000 over several years. For professionals pursuing further qualifications, MBA programs and specialist courses can cost even more.

Using equity release from your property offers several advantages over alternative funding methods:

• Access to larger amounts of capital compared to personal loans
• Lower interest rates than credit cards or personal finance options
• Potential tax benefits if the education relates to your business income
• Flexible repayment terms that align with your cashflow needs
• Ability to consolidate into mortgage any existing education debts

When to Refinance Your Home Loan

Timing matters when considering mortgage refinancing. Several scenarios make this an appropriate strategy:

Coming off a fixed rate period: If your fixed rate expiry is approaching, this is an ideal time to conduct a loan health check and reassess your entire financial position. You might be able to switch to variable, lock in a new rate, and access equity simultaneously.

Property values have increased: A property valuation showing significant growth means you may have more equity available than you realised. Regular home loan health check reviews help you stay informed about your equity position.

Your income has grown: As a self-employed professional, if your business income has increased, your borrowing capacity may have improved, making it easier to qualify for a larger loan amount.

Interest rates have shifted: If you're stuck on a high rate compared to current refinance rates, you could save thousands while also accessing funds for education.

The Refinance Process for Accessing Equity

Understanding the refinance application steps helps you prepare:

1. Review your current loan: Look at your existing interest rate, loan features, and any break costs if you're in a fixed rate period
2. Determine how much equity you need: Calculate education costs and decide how much to release equity from your property
3. Compare refinance rates: Research what variable interest rate or fixed interest rate options are available
4. Consider loan features: Look for offset account or redraw facilities that improve cashflow management
5. Submit your refinance application: Provide income documentation (especially important for self-employed borrowers)
6. Arrange property valuation: Lenders will assess your property's current value
7. Complete the switch: Move mortgage to your new lender and access your equity funds

Balancing Education Funding with Wealth Building

For professionals focused on growing wealth through property, using equity for education might seem counterintuitive. However, when managed correctly, it can be part of a sound financial strategy.

The key is ensuring that the education investment delivers returns - whether through increased earning capacity, business growth, or your children's future prospects. Many self-employed professionals find that investing in their own skills or their children's education generates long-term value that justifies the temporary increase in their loan amount.

You might also consider whether you can structure the refinancing to maintain capacity for future property investments. This is where speaking with a finance and mortgage broker who understands investment strategies becomes valuable.

Tax Considerations for Self-Employed Borrowers

If you're self-employed and the education relates to your current business or profession, there may be tax advantages. The interest on the portion of your loan used for work-related education could potentially be tax-deductible. This can reduce loan costs over time and improve the overall financial position of using equity for education.

Always consult with your accountant to understand how accessing equity for education expenses affects your specific tax situation.

Alternatives to Consider

While refinancing to access equity can be powerful, it's worth comparing against other options:

• Education loans: Specialised student loans may offer different terms
• Offset account strategies: If you already have substantial savings in an offset account, you might use these funds while keeping your mortgage structure unchanged
• Redraw facilities: If your current loan has a redraw option with available funds, this could provide immediate access without a full refinance
• Investment loans: If you're planning to acquire another property soon, consider whether education funding affects your investment timeline

Protecting Your Financial Position

When you unlock equity for any purpose, you're increasing your debt. This requires careful consideration:

• Ensure your income can comfortably service the higher loan repayments
• Maintain an emergency buffer in savings or offset accounts
• Consider income protection insurance to safeguard against income disruption
• Plan for how the additional debt affects future borrowing capacity for property investments
• Review whether to switch to fixed or stay on a variable interest rate based on your risk tolerance

Why Refinance With Professional Guidance

Self-employed borrowers face unique challenges when applying for finance. Income verification can be more complex, and lenders assess your application differently than they would for PAYG employees. Working with a finance and mortgage broker who understands self-employed lending means:

• Knowing which lenders are most favourable to your income structure
• Presenting your application in the strongest possible way
• Potentially accessing a lower interest rate through lender relationships
• Understanding how to save money refinancing while accessing equity
• Coordinating timing if you're coming off a fixed rate or planning other financial moves

Making Your Decision

Refinancing your home loan to access equity for education is a significant financial decision that deserves thorough consideration. Calculate the numbers, understand your why refinance motivations, and ensure the strategy aligns with your broader wealth-building goals.

Education is an investment in human capital - one that can pay dividends for decades. When structured thoughtfully, using your property equity to fund education can be a powerful way to invest in the future while maintaining your property portfolio.

If you're considering this strategy and want to explore whether it makes sense for your situation, professional advice tailored to your circumstances is invaluable.

Ready to explore your refinancing options? Call one of our team at Makara Finance or book an appointment at a time that works for you. We specialise in helping self-employed professionals and business owners structure their finance to support both lifestyle goals and wealth creation through property.