Understanding Investment Property Refinancing
Refinancing an investment property involves replacing your existing home loan with a new one, typically to take advantage of lower interest rates, access equity, or improve loan features. For property investors in Reservoir, refinancing can be a powerful tool to maximise returns and build wealth through your investment portfolio.
Many investors find themselves stuck on high rates or dealing with loan products that no longer suit their financial goals. A loan health check can reveal whether you're paying too much interest or missing out on features that could improve your investment strategy.
Why Refinance Your Investment Property
There are several compelling reasons to consider investment loan refinance:
- Lower interest rates: If current refinance rates are lower than what you're paying, refinancing could save thousands of dollars over the life of your loan
- Access equity for investment: Release equity to buy the next property and expand your portfolio
- Consolidate debt: Move personal loans or credit card debt into your mortgage at a lower interest rate
- Improve loan features: Switch from a basic loan to one with an offset account or redraw facility
- Adjust loan structure: Switch to variable or switch to fixed depending on your risk tolerance and market conditions
When to Consider Refinancing
Timing is crucial when you refinance your investment property. Consider these scenarios:
Fixed Rate Period Ending: If you're coming off fixed rate, this is an ideal time to review your loan. Your fixed rate expiry presents an opportunity to potentially access a lower interest rate without break costs.
Property Value Increase: When your property has increased in value, you can unlock equity for your next investment purchase or renovations.
Cashflow Challenges: If your investment property is affecting your cashflow negatively, refinancing to a lower rate can reduce loan costs and improve your monthly position.
Portfolio Restructuring: When you want to consolidate multiple investment loans or separate your owner-occupied and investment borrowings for tax purposes.
Accessing Equity Through Refinancing
One of the most powerful reasons investors refinance is to access equity. This equity release strategy allows you to use the increased value in your existing property to fund additional investments.
For example, if your Reservoir investment property has grown in value from $600,000 to $750,000, you may be able to release equity to use as a deposit on another property. This is often called a cash out refinance, and it's a common wealth-building strategy for experienced investors.
However, releasing equity in your property requires careful consideration of:
- Your borrowing capacity and serviceability
- The impact on your loan amount and repayments
- Whether a property valuation supports the equity position
- Your overall investment strategy and risk tolerance
Comparing Refinance Rates and Features
When you compare refinance rates, don't focus solely on the interest rate. Consider these features:
Offset Account: A refinance offset account can significantly reduce the interest you pay by offsetting your savings against your loan balance.
Redraw Facility: A refinance redraw option allows you to access extra repayments you've made, providing flexibility for maintenance costs or other investment opportunities.
Interest-Only Options: Many investment property owners prefer interest-only repayments to maximise tax deductions and preserve cashflow.
Fixed vs Variable: Decide whether to lock in rate certainty with a fixed interest rate or maintain flexibility with a variable interest rate.
The Refinance Process for Investment Properties
The refinance application for an investment property follows these general steps:
- Conduct a comprehensive loan review to assess your current situation
- Determine your goals (lower rate, access equity, consolidate debt)
- Gather documentation including rental income statements, tax returns, and property information
- Submit your refinance application to suitable lenders
- Complete property valuation requirements
- Review and sign loan documentation
- Settlement of your new loan
Working with experienced mortgage brokers who understand investment property lending can streamline this refinance process and ensure you're positioned for success.
Potential Savings and Considerations
Refinancing to access a lower interest rate can save money refinancing over the life of your loan. Even a 0.25% reduction on a $500,000 investment loan could save you over $15,000 across a 30-year loan term.
However, factor in:
- Exit fees from your current lender
- Application fees for your new loan
- Property valuation costs
- Legal and settlement costs
A thorough cost-benefit analysis will show whether the potential savings justify the refinance costs. For most Reservoir investors with loans over $300,000, the numbers typically work in favour of refinancing when you can access a better interest rate of 0.5% or more.
Tax Implications for Investment Property Refinancing
When you refinance an investment property, it's important to understand the tax treatment. Generally:
- Interest on borrowings used for investment purposes remains tax-deductible
- Refinancing costs may be tax-deductible when spread over five years or the loan term
- Equity accessed for investment purposes maintains tax-deductibility
- Equity used for personal purposes creates a mixed-use loan requiring careful record-keeping
Always consult with your accountant or tax adviser before proceeding with any refinance that involves accessing equity or changing your loan structure.
Making Your Decision
If you're a property investor in Reservoir wondering whether to move your mortgage to a new lender, the answer depends on your individual circumstances. The key is conducting a thorough home loan health check to understand exactly where you stand and what opportunities exist.
At Andor Financial, we specialise in helping Reservoir investors maximise their property portfolio returns through strategic refinancing. We'll analyse your current loans, identify opportunities to reduce costs, and structure your borrowings to align with your investment goals.
Don't let your investment property sit on an uncompetitive rate or miss opportunities to access equity for your next purchase. Call one of our team or book an appointment at a time that works for you to discuss your investment property refinancing options.