“Refinancing can be an effective way to improve your investment property’s financial performance, increasing available funds and achieving long-term investment goals. In conjunction with maximising your returns on your investment property (ROI), it can help you achieve your property investment goals” commented Pippa Rose, Lead Investment Services Manager at Leah Jay.

It is important to consult with a financial advisor or an independent mortgage advisor to determine if refinancing is the right option for you and your investment strategy.

Contents

Refinancing your investment property can be important for many reasons:

  • Changes in interest rates

By refinancing you may be able to negotiate a lower interest rate, lowering your monthly mortgage payments and potentially saving you money across the life of a loan.

  • Switch between fixed and variable interest rate

Some 800,000 Australian households are coming off a fixed rate this year (source RBA). If you are in this situation, shop around with other lenders to get a better interest rate.

  • Access Equity

Refinancing can also provide you with access to equity in your property, which you can use to finance other investments or make property improvements.

  • Changing loan terms

Refinancing allows you to change the terms of your loan, such as the length of the loan, or the loan type. This can also help you to save money and help you to achieve your investment goals.

  • Improving cash flow

Refinancing can improve your property’s cash flow by lowering monthly payments or providing access to funds to improve the property’s condition thus attracting a higher-quality tenant. This in turn increases ROI.

 

“Refinancing is often seen as difficult, when in fact it is a straightforward process. Those on a fixed-term loan may incur penalties for ‘breaking’ their loan, so preparing for the end date is key. When differences in fixed and variable rates are high, increased payments can add up to be in the hundreds of dollars.” Says Pippa Rose.

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Refinancing - What you should know

What to know before refinancing your investment property

  • The cost of refinancing

Initially, it might cost you a bit of money such as an application fee, discharge fee, mortgage registration fee, exit fee, etc.

  • Tax deductions

If you’re refinancing an investment loan you may be able to claim a tax deduction for the borrowing costs and exit fees. Talk to your tax accountant about these first.

  • Loan to Value Ratio (LVR)

The lower your equity the higher risk you are to the lender and therefore you may be charged a higher interest rate to offset the lender’s risk.

  • Credit Rating

Having a good credit score is especially important as there are tougher lending restrictions on investment loans.

  • Proof of income

Investors are scrutinised more than owner-occupiers. Investors need to provide more documentation of proof of income and if your rental property isn’t performing well this can impact your refinancing or borrowing capacity.

Key Takeaways

Our Investment Services team can guide you

    If you want to find out more about refinancing your investment property or are interested in a Property Health Check, contact our Investment Services Team: [email protected]

    Disclaimer: This information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your situation, and for professional advice, seek out a financial adviser.