Refinancing a loan on your investment property can help you grow and improve the value of your portfolio.
Why should you refinance your investment property? Refinancing your loan allows you to access the equity in your property. Equity is the proportion of the property you own – for example, if the property is worth $500,000 and you owe $200,000 to the bank, then you have $300,000 in equity.
Savvy property investors use their equity for a variety of different purposes:
- To renovate and add value to an investment property
- As a deposit for their next investment property
- To fund their lifestyle and living expenses.
Another popular reason to refinance is to secure a more competitive interest rate or a loan that better suits your needs. There may be loan features that can improve your interest savings or cash-flow, like offset accounts and redraw facilities. It pays to talk with your mortgage broker and reassess your property investment loans regularly, to ensure you’ve got the right loan to maximise your financial benefits and tax advantages.
1. Market value and equity
Usually, we like to put some things at the back of our minds, especially something major like a mortgage loan. However, if you’ve stayed with the same loan for a few years, it is a good idea to look into other options that are available for you. Generally speaking, you should look into remortgaging your investment property when the equity has grown sufficiently, allowing you to take the next step in your investment strategy or fund renovation for the property. Before refinancing, your property will need a formal valuation. To get an idea of how your property is performing in the current market, download our Instant Property Report.
2. Consider the costs
Switching lenders and refinancing your investment can take you closer to your goals, but it can come at a cost. Depending on your circumstances, you may need to pay loan break fees or discharge fees, establishment fees for your investment loan, and valuation fees.
3. Investigate how the market is performing
Refinancing or not will depend on how the property market is performing for your investment. That may mean the location of your investment property will be a key consideration when deciding to refinance. If you refinance your property after its value has decreased, you risk facing negative equity territory. This is when the value of your investment falls below the outstanding balance on the mortgage. In this situation, it may be better to wait until the value of your property improves before you refinance.
4. Other considerations
Other considerations. The investment lending landscape has seen a few changes recently, with APRA’s new regulation and RBA lowest interest rate in history. As a result, we’re seeing many incredible deals popping up in the market, making now a good time to reassess your investment strategies and refinance requirements.
When in doubt, get in touch with a mortgage broker to make an informed decision that will work best for you. If you’d like to access equity to grow your investment portfolio or you just want to know you’re getting the best deal, chat with one of our mortgage brokers today.