Refinancing your investment property can help you achieve several financial goals, such as reducing costs, unlocking equity for future investments, or restructuring your loans to improve returns.
Whether you’re looking to lower your interest rates or expand your portfolio, understanding how refinancing works is essential. This guide will walk you through the process, benefits, and important considerations to make refinancing a smooth and rewarding experience.
What Is Refinancing an Investment Property?
Refinancing an investment property means replacing your current mortgage with a new loan that has more favourable terms, such as a lower interest rate or a longer loan period, helping you access better financial benefits. The goal is to secure better financial terms or access equity tied up in the property for further investment opportunities.
Unlike home refinancing, which typically aims to reduce monthly payments, refinancing for investment properties focuses on strategies like improving cash flow, unlocking equity, and optimising tax advantages for further investment.
Property investors often choose to refinance investment property loans when market conditions are favourable or when the property value increases, allowing them to access more equity. Refinancing will enable investors to adjust their loan structure based on evolving financial needs, helping them maximise profitability and long-term capital growth.
Benefits of Refinancing Your Investment Property
Here are the benefits of refinancing your investment property. It can help lower your interest rates, reduce monthly repayments, unlock equity for future investments, and provide potential tax advantages.
1. Lower Interest Rates
Refinance investment home loan options can help you secure a lower interest rate, leading to reduced monthly repayments and a significant reduction in the overall interest paid over the life of the loan. This can free up additional funds that can be reinvested into your property portfolio or used to improve cash flow.
2. Accessing Equity for Further Investment
If your property has appreciated, investment property refinancing can provide an opportunity to access the increased equity. This equity can then be used to fund additional investments or make improvements to existing properties, allowing you to build wealth through real estate.
3. Tax Benefits
Mortgage refinance for investment property may offer potential tax advantages, particularly in relation to interest payments on the new loan. By increasing your loan size or taking out a new loan, you may be able to maximise tax deductions, which could be highly beneficial for property investors.
Tip:
Understand the tax implications of refinancing your mortgage. By increasing your loan size, you can potentially maximise tax deductions related to interest payments on the new loan.
4. Debt Consolidation
For property investors with multiple loans, refinancing a home loan for investment property can provide a way to consolidate debts into one manageable loan. This can simplify your financial situation, reduce the number of repayments, and potentially lower your interest rate on the combined debt.
Tip:
If you have multiple loans, consolidating them into one can simplify your financial management and may offer better interest rates on the total debt.
How to Refinance Your Investment Property: Step-by-Step
Refinancing an investment property involves several key steps that require careful planning and consideration. Follow this guide to ensure you’re making the right decisions for your financial future.
- Evaluate Your Current Loan: The first step is to review your current mortgage terms, including the interest rate, loan balance, and any penalties for early repayment. Understanding the structure of your current loan is crucial before considering refinancing options.
- Check Your Property’s Value: The next step is to assess your property’s current market value. This will determine your Loan-to-Value Ratio (LVR), which in turn influences the loan products available to you. A higher property value can help you access more equity.
- Calculate Your Equity: Equity is the difference between your property’s market value and your current loan balance. By calculating your equity, you can determine how much you can borrow when refinancing. This step is crucial if you plan to use the equity for further investments.
- Research Lenders and Loan Products: Compare different lenders, their interest rates, fees, and loan terms to find the best options for your needs. It’s essential to shop around and find a lender that offers the best terms for your specific financial situation. Look for lenders that provide competitive investment property loan refinance products.
- Consider Associated Costs: Investing in a property loan refinance comes with associated costs, such as application fees, valuation fees, and exit fees from your current loan. Factor these into your decision to ensure that refinancing is financially viable.
- Seek Professional Advice: It’s highly recommended to consult with a mortgage broker or financial advisor before refinancing. A professional can guide you through the process, help you navigate lender options, and ensure you’re making the best choice for your investment goals.
Tip:
Follow a structured approach by evaluating your current loan, checking property value, calculating your equity, comparing lenders, and accounting for costs. Don’t rush, each step is crucial for making informed decisions.
Risks and Things to Consider Before Refinancing
While refinancing offers numerous benefits, it’s essential to carefully weigh the risks and consider several key factors before proceeding.
Additional Costs
Refinance investment property loans often come with several upfront costs, including application fees, valuation fees, and potential break fees if you are exiting a fixed-rate loan early. These costs can add up and reduce the overall savings from refinancing, so it’s essential to assess whether the potential benefits outweigh these expenses.
Impact on Cash Flow
Refinancing can result in lower monthly repayments, but changing loan terms, such as extending the loan term, may also increase the total amount of interest paid over the life of the loan. Be mindful of how your refinancing decision could impact your long-term cash flow.
Fixed vs Variable Rates
Choosing between fixed and variable rates is a crucial decision when refinancing a mortgage for an investment property. Fixed rates offer certainty and stability, but they often come with higher
initial rates and limited flexibility. Variable rates, on the other hand, can offer lower initial rates but expose you to interest rate fluctuations. Consider your financial goals and risk tolerance when making this choice.
Loan Features and Options
Different loans come with various features, such as offset accounts, flexible repayments, or the ability to make extra repayments. Review the available options to ensure that the new loan structure aligns with your long-term investment strategy.
Tip:
Be aware of additional costs, such as application and exit fees, and how refinancing may affect your long-term cash flow. Weigh both the benefits and risks before moving forward.
Common Mistakes to Avoid When Refinancing Your Investment Property
To ensure refinancing works in your favour, avoid these common mistakes:
- Not Checking Loan Terms Thoroughly: It’s essential to thoroughly review all the terms and conditions of your new loan. Failing to do so can result in unexpected fees or penalties that may diminish the financial benefits of refinancing.
- Failing to Account for Hidden Fees: Be aware of all associated costs, such as application fees, exit fees, and valuation fees. These hidden costs can eat into the savings you might expect from refinancing.
- Refinancing Too Frequently: While refinancing can be a helpful tool, doing it too frequently can result in more costs than benefits. Each refinancing process comes with fees and administrative tasks, so ensure you’re only refinancing when it makes financial sense.
Tip:
Always thoroughly review loan terms, avoid refinancing too frequently, and be mindful of hidden fees. Take time to ensure refinancing is genuinely beneficial to your financial goals.
When Should You Refinance Your Investment Property?
The best time to refinance investment home loan is when market conditions are favourable, such as when interest rates drop or property values rise. Additionally, refinancing is ideal when your financial situation has improved or when your current loan terms no longer align with your investment goals. Monitoring both the property market and the lending environment will help you determine the right time to refinance.
Each refinancing method offers different benefits, depending on your goals, whether it’s lowering your interest rate, tapping into equity, or adjusting loan terms. To give you a better sense of how popular each option is, the pie chart below breaks down the most commonly
selected refinancing types, helping you visualise the choices that property owners most frequently make.
Types of Refinancing Options
Tip:
Look for favourable market conditions, such as a decrease in interest rates or an increase in property values, and assess your financial situation to determine the best time.
Case Study: Refinancing to Grow an Investment Portfolio
Mark and Lisa, a couple in their early 40s, owned a 3-bedroom investment property in Brisbane that they had purchased five years prior. The property had appreciated, and they were looking to expand their investment portfolio, but didn’t have the liquid funds to do so.
The Challenge:
Their existing loan had an interest rate of 6.1%, and they had no clear strategy for unlocking the equity they had built. They were unsure whether refinancing would be worth the upfront costs and wanted to avoid unnecessary financial risk.
The Solution:
After a consultation with our team at Stryve Finance, we helped them:
- Refinance to a new loan with a reduced interest rate of 5.2%,
- Unlock $180,000 in equity without exceeding a comfortable Loan to Value Ratio (LVR),
- Structure the new loan with interest-only repayments for the first five years, freeing up cash flow.
The Result:
Mark and Lisa used the released equity as a deposit on a second investment property in the Gold Coast. The rental income from the new property generated $560/month in net positive cash flow, and the couple is now positioned to grow their portfolio within 2–3 years.
Why Choose Stryve Finance as Your Mortgage Broker?
At Stryve Finance, we offer personalised service and expert advice to guide you through the refinancing process. As a leading mortgage broker in Australia, we specialise in helping property investors refinance investment property loans with the most favourable terms.
Our team collaborates with a diverse range of lenders to ensure you secure the most favourable interest rates and loan terms tailored to your unique financial situation. With a free consultation, you can explore your refinancing options and make the best decision for your investment goals.
Conclusion
Refinancing your investment property can offer numerous financial benefits, including lower interest rates, improved cash flow, and the opportunity to access additional equity. By following a systematic approach and working with the right professionals, you can make informed decisions that align with your investment strategy.
Contact Stryve Finance today for a personalised refinancing consultation and take the next step toward achieving your property investment goals.
Dylan Bertovic is the Director and Senior Finance Broker at Stryve Finance, specialising in non-traditional lending solutions. He helps clients across Australia with tiny home loans, construction finance, equipment and asset lending, refinancing, and investor loans. With deep expertise in self-employed and renovation mortgages, Dylan is known for crafting tailored strategies that get results
