Refinance a Strata Loan: Who's Checking Your Rate After You Borrow?

Key takeaways

• A strata loan can have been competitive when it was arranged and still become uncompetitive later.

• Your strata manager is busy managing the building and may not be continually monitoring competing lenders and interest rates.

• Existing strata loans can potentially be refinanced where suitable alternative finance is available and the required approvals are obtained.

• The right question is not whether your original loan was a bad decision. It is whether you would choose the same loan at today's pricing.

• Checking the rate first can establish whether there is anything worth pursuing before creating additional work for the committee or strata manager.

You may be able to refinance a strata loan if your existing facility is no longer competitive and suitable alternative finance is available. The bigger issue is that nobody may be regularly checking. Strata managers have buildings to run, so a loan arranged several years ago can simply keep rolling long after the market around it has changed.

This is the strata-finance version of “set and forget”. The building needed money, the committee debated the project, the strata manager helped organise finance, the loan was approved and the contractors got started. Then everyone moved on.

Two years later, nobody has looked at the loan. Then three years pass. Then five. The repayments keep appearing in the budget, but nobody is specifically responsible for asking whether the building could now get a better deal.

That is where refinancing comes in.

What does it mean to refinance a strata loan?

To refinance a strata loan means replacing an existing owners corporation or body corporate loan with a new facility, generally because the alternative offers more attractive pricing, terms or both.

A strata loan is borrowing taken out by the collective entity responsible for the scheme. In NSW and Victoria that entity is generally known as the owners corporation. In Queensland it is generally known as the body corporate.

The loan commonly funds major common-property expenditure rather than being a personal mortgage taken out by each apartment owner.

Australian strata lenders do offer refinancing facilities. Firstrata, for example, expressly lists refinancing of expensive loans as a permitted purpose for its standard strata finance product.

Refinancing is therefore not an unusual concept. The real question is whether the numbers justify it.

Who checks whether an existing strata loan is still competitive?

In many schemes, there may be nobody whose specific ongoing job is to continually benchmark an existing strata loan against the lending market.

This is easy to overlook. When a home loan borrower takes out a mortgage, they know the bank is unlikely to call every year and volunteer that another bank has a cheaper product. The borrower has to review it.

A strata loan can suffer from the same inertia, except responsibility is spread across an entire building. Committee members are volunteers, the strata manager has hundreds of other tasks and the existing lender has little commercial incentive to tell the owners corporation to leave.

Unless somebody deliberately asks the question, the loan may simply continue.

Isn't checking the strata loan part of the strata manager's job?

Owners should not automatically assume their strata manager is continually monitoring the lending market for refinancing opportunities.

The manager's job is much broader than finance. MRI Software's national Voice of the Strata Manager research found nearly 60% of Australian strata managers worked more than 38 hours per week, while 19% worked 51 hours or more. Its research also reported that communicating with building owners consumed 60–80% of most strata managers' time.

That leaves a lot competing for attention: maintenance, defects, insurance, compliance, contractors, budgets, levies, meetings, correspondence, disputes and whatever went wrong in the building that morning.

Now add: “Please continually monitor specialist strata lenders and tell us whenever refinancing becomes attractive.”

It is understandable if that does not happen. This is not a criticism of strata managers. It is a division-of-labour problem.

Your strata manager manages the building. They are not necessarily your building's refinance broker.

Can a good strata loan become expensive over time?

Yes. A loan that was competitively priced when it was arranged can become less competitive as lender pricing, products and market conditions change.

Suppose your owners corporation did everything correctly when it first borrowed. Several lenders were considered, the committee received reasonable information and the selected loan represented good value.

Nothing about that process guarantees the same facility will still represent good value several years later.

The distinction is between “This was competitive when we borrowed” and “This is competitive today.” Those are different claims.

Most people intuitively understand this with mortgages. A home loan can be a good deal when it starts and gradually become less attractive relative to competing products. There is no reason to assume a strata loan should be immune from the same basic financial principle.

Why do strata loans get left unchecked?

Existing strata loans can go unchecked because refinancing is rarely the most urgent issue facing a committee or manager.

Strata buildings generate urgent problems. Water leaks, fire orders, broken lifts, insurance renewals, AGMs, contractors and owner disputes all demand attention.

A functioning loan quietly deducting repayments every month rarely creates the same sense of urgency.

That is precisely why inertia can become expensive. Nothing needs to be obviously wrong with the existing loan for a better alternative to exist, and nobody needs to have made a mistake.

The loan may simply have stopped being as competitive as it once was.

Our strata manager arranged the loan. Shouldn't they tell us if rates improve?

Not necessarily. Unless ongoing finance-market monitoring forms part of someone's role, owners should not assume competing strata loan rates are being continually tracked.

Again, consider the property-manager analogy. You would not expect a property manager looking after your investment unit to periodically refinance the mortgage attached to that property. They perform a different function.

The same distinction matters in strata. A strata manager can have helped arrange the original finance professionally and competently without accepting an ongoing obligation to benchmark that finance indefinitely.

That is why a periodic independent check can make sense.

How often should you check whether to refinance a strata loan?

There is no universal rule, but reviewing an existing strata loan periodically can be sensible where the balance remains material or market conditions have changed.

A review may be particularly worth considering when the loan has been running for several years, the interest rate has changed materially, interest expense has become significant in the scheme's budget, the outstanding balance remains substantial, the loan was originally arranged quickly because works were urgent, another lender has approached the scheme or nobody can remember the last time the rate was compared.

A rate check does not mean you need to refinance. It answers a simpler question: Is there anything here worth investigating?

If the current facility remains competitive, that is useful information too.

How do I know whether our current strata loan rate is high?

You cannot determine whether a strata loan rate is competitive by looking at the percentage alone. It must be compared with suitable alternatives available to the particular scheme.

Owners sometimes encounter a rate of 8%, 9%, 10% or more and immediately ask whether it is “too high”. But context matters. Strata lending is different from residential mortgage lending, and loan size, scheme characteristics, the project being funded, facility structure, lender criteria, term, repayment conditions and fees can all influence pricing.

One PropertyChat discussion illustrates the uncertainty. An owner whose body corporate was considering approximately $200,000 of borrowing had received unsecured quotes at 10.8% and 11.88% and asked whether the pricing was normal and what alternatives existed.

The useful question is not, “Does this number look high?” It is, “What could a comparable owners corporation borrow at today?”

Can an owners corporation refinance its existing strata loan?

Yes, refinancing may be possible where another lender is willing to provide a suitable replacement facility and the owners corporation obtains the approvals required in its jurisdiction.

Some specialist Australian strata lenders explicitly offer refinancing. Firstrata currently lists refinancing of expensive loans among the permitted purposes for its standard and smaller Strata Lite facilities.

The exact legal approval process varies between states and territories. In NSW, section 100 of the Strata Schemes Management Act 2015 provides that an owners corporation may borrow money, but the relevant loan must be approved by resolution at a general meeting.

Schemes outside NSW should confirm the legislation and approval process applicable to them. This article is general information rather than legal advice.

How do you check whether refinancing a strata loan is worthwhile?

Start by comparing the complete existing facility with the complete proposed replacement, rather than comparing interest rates alone.

A practical rate-check process is:

1. Find the current outstanding balance. The larger the balance, the greater the dollar impact of a rate difference.

2. Confirm the current interest rate. Establish whether it is fixed, variable or otherwise adjustable.

3. Check the remaining term. A lower rate over a very short remaining period may have less value than it first appears.

4. Identify existing fees and exit costs. Refinancing can involve discharge or other costs.

5. Obtain suitable alternative pricing. Compare finance actually available to the scheme rather than generic advertised rates.

6. Compare the proposed fees and terms. A lower headline rate can be offset by establishment costs or less favourable conditions.

7. Calculate the expected net benefit. Consider potential interest savings after refinancing expenses.

8. Decide whether the saving justifies proceeding. Not every possible refinance is worth pursuing.

For more background, read our guide to strata loans [INTERNAL LINK: /strata-loans].

How much could a lower strata loan rate save?

The potential saving depends on the loan balance, difference in interest rate, repayment profile, remaining term and refinancing costs.

Consider a hypothetical example. An owners corporation has $1 million outstanding on its existing loan. The current interest rate is 10% p.a., and an otherwise suitable alternative is available at 8% p.a.

A two-percentage-point difference on the starting $1 million balance represents approximately $20,000 less interest in the first year, before accounting for principal reductions, fees, rate changes and refinancing costs.

On a $2 million starting balance, the same two-percentage-point difference initially represents approximately $40,000. A one-percentage-point difference on $1 million initially represents approximately $10,000.

These are illustrative calculations only. They are not promised savings and do not mean a particular owners corporation will be able to obtain a rate two percentage points below its current rate.

The example simply demonstrates why checking can matter.

Could a lower rate still be a worse refinance?

Yes. A lower headline interest rate does not automatically make a new loan better.

Owners should also consider establishment fees, discharge costs, ongoing fees, repayment flexibility, loan term, variable-rate provisions, drawdown arrangements, early repayment conditions and any other material facility terms.

Imagine saving $8,000 in interest but incurring $12,000 in refinancing costs. That clearly requires a different assessment from saving $40,000 with minimal switching costs.

The correct comparison is therefore the overall financial outcome, not merely Rate A versus Rate B.

Will refinancing create more work for our strata manager?

Some manager involvement will usually be required if refinancing proceeds, but the initial rate check does not need to become another major strata-management project.

This matters because the obvious response from an already stretched committee or manager is, “This sounds like more work.”

The better approach is to separate the process into two stages.

Stage 1: Is there actually an opportunity?

Start with the current balance, interest rate and core loan terms. Compare the existing facility with realistic alternatives.

If there is no meaningful improvement available, stop there.

Stage 2: Is refinancing worth proceeding with?

Only if the potential benefit looks worthwhile does the committee need to consider the formal refinancing process, approvals and necessary involvement from the strata manager.

That is far more efficient than asking the manager to investigate multiple lenders every year just in case a better rate exists.

What does RateCheck Strata do?

RateCheck Strata helps owners corporations check whether an existing strata loan may be costing more than necessary and, where a suitable lower-cost alternative is available, explore refinancing.

The idea is deliberately simple. Start with the existing loan, understand what the building is paying, see whether a more competitive alternative appears to be available and then decide whether doing anything about it is worthwhile.

RateCheck does not need to assume your original lender was wrong. It does not need to assume your strata manager made a poor decision.

It simply asks:

Would we choose this same loan at today's price?

Is this really a strata-manager problem?

No. The bigger problem is inertia.

Most strata managers are trying to keep a complicated collection of buildings, owners, contractors and regulatory obligations functioning. The committee members are generally volunteers, and the original loan solved a problem.

So once the loan is established, everyone naturally moves on. The building keeps paying, the rate remains whatever the rate is, and unless someone specifically checks, nobody necessarily knows whether a better option has emerged.

That is why the refinance question is not, “Who got us into this loan?”

It is:

“Should we still be in it?”

FAQ

Can you refinance a strata loan?

Yes. An owners corporation or body corporate may be able to replace an existing strata loan with another facility where a lender is willing to provide suitable finance and the necessary approvals are obtained.

Is my strata manager supposed to monitor our loan rate?

Owners should not assume ongoing whole-of-market rate monitoring forms part of ordinary strata management services. The manager's exact responsibilities depend on the agreement, delegated functions, legislation and circumstances.

When should an owners corporation review its loan?

There is no single mandatory timetable. A check can make sense when the loan has been running for several years, the outstanding balance remains significant, rates have changed or nobody has benchmarked the facility recently.

Does checking our rate mean we have to refinance?

No. A rate check can simply confirm that the existing facility remains reasonable. Refinancing should only be considered if the available alternatives and overall economics justify it.

Is a lower interest rate always better?

No. A proper comparison includes interest, establishment and discharge costs, ongoing fees, term, repayment flexibility and other facility conditions.

What information does RateCheck need to start?

For an initial review, the useful starting information is generally the current loan balance, interest rate and basic facility details. Further information may be needed if a refinancing opportunity is worth investigating.

Your loan might have been competitive when you got it. Check whether it still is.

Nobody needs to have made a mistake for an owners corporation to end up paying more interest than necessary.

Your original lender may have been perfectly competitive. Your strata manager may have handled the finance properly. The market may simply have moved.

If your building already has a strata loan, RateCheck Strata can help check whether the rate is still competitive and whether refinancing may be worth considering.

If the existing loan still stacks up, great. If it doesn't, at least you know.

Let your strata manager manage the building. Let RateCheck check the rate.

General information only. This article does not constitute financial, legal or tax advice.