Home-owners are being warned not to use their mortgages to bankroll extravagant purchases such as expensive cars. Picture: Supplied

As new statistics show the level of mortgage refinancing in Australia has almost doubled over the past five years, mortgage specialists warn the practice of using a home loan to pay for lifestyle expenses can send peoples’ finances into reverse.

The trend has been noticed by the Australian Taxation Office, which says it is paying special attention this year to people who claim tax deductions for loans used to buy personal assets.

Bureau of Statistics data shows that Australians refinanced $7.1 billion of mortgages in March, up from $3.6 billion for the same period in 2011. The Reserve Bank of Australia yesterday kept the official interest rate on hold at 1.75 per cent, but several economists expect it to fall further soon.

Aussies are being tempted to use their home loans to pay for expensive items they can’t really afford, like a yacht. Picture: Regi VargheseSource:News Corp Australia

Mortgage Choice spokeswoman Jessica Darnbrough said refinancing activity was at record levels as rising property prices delivered homeowners equity to do other things.

“Times are good, and people are comfortable with their finances. They see equity in their homes and they do tend to look at things such as purchasing cars,” she said.

“We have found that when people purchase property, usually within six or 12 months they come back looking to purchase a new vehicle.”

Ms Darnbrough said renovations were another big focus for refinancing households that wanted to avoid the high transfer costs of buying another home. “Stamp duty costs are through the roof these days,” she said.

Mortgage Choice spokeswoman Jessica Darnbrough has some advice for homeowners. Picture: SuppliedSource:Supplied

Aussie Home Loans chief executive James Symond said his company’s data showed refinancing was up 20 per cent this year, and was likely to stay strong as people realised that low interest rates were likely to last for longer.

“Many homeowners are saving an average of 0.71 per cent on their home loan interest rates when they refinance,” he said.

Mr Symond said the top uses of equity included education, buying cars and renovations.

“We believe that borrowers should not overstretch themselves by borrowing too much, and keep their mortgage repayments well within their means,” he said.

Homeloans mortgage broker Barry Wilkinson said he advised clients to avoid putting cars, boats and other things on their mortgage.

While it might help a household’s cash flow because interest rates on mortgages were lower than other loans, it meant people’s equity was “eaten away” by assets that continually lost value, Mr Wilkinson said.

“Patience is something that we seem to have forgotten,” he said. “There’s so much distraction in life and the conventional way of saving for and then buying it has gone out the window.”

ATO assistant commissioner Graham Whyte said the tax office had noticed some property investors using their increased equity to extend their loans to buy personal items, and then incorrectly claiming tax deductions for the private portion.

“If you use it for a boat or car or something personal, it’s not deductible,” Mr Whyte said.