When to Refinance Your Investment Property

Why Refinance Your Investment Property?

As a property investor in Cobbity, your investment property isn't just about collecting rent - it's a financial asset that should work hard for you. Over time, your circumstances change, property values shift, and new loan products emerge that could save you thousands of dollars. That's where refinancing your investment property comes into play.

Mortgage refinancing means switching your existing home loan to a new one, either with your current lender or a different one. For investment properties, the reasons to refinance often differ from owner-occupied homes. You might want to access equity to buy the next property, reduce loan costs, or take advantage of a lower interest rate that's become available since you first took out your loan.

When Should You Consider Refinancing?

Timing is crucial when it comes to deciding whether to refinance your investment property. Here are some key situations when refinancing makes sense:

Coming off a fixed rate period: If your fixed rate period ending soon, you'll automatically roll onto your lender's standard variable rate, which is often higher than what's currently available in the market. This is the perfect time for a loan review to see if you're stuck on a high rate.

Access equity for investment: Property values in areas around Cobbity have changed over the years. If your property has increased in value, you might be able to release equity to fund your next investment purchase or renovations. Unlock equity through a cash out refinance to expand your investment portfolio.

Paying too much interest: If you've been on the same loan for several years, there's a good chance you could potentially access a better interest rate. Even a difference of 0.25% can save you thousands over the life of your loan amount.

Better features needed: Maybe your current loan lacks an offset account or redraw facility. Refinancing can give you access to features that improve cashflow and flexibility for managing your investment property.

Understanding Your Refinancing Options

When you refinance your investment property, you'll need to choose between different interest rate structures:

Variable interest rate: This rate moves up and down with market conditions. A variable rate typically offers more flexibility with features like refinance offset account and refinance redraw facilities, allowing you to make additional repayments without penalty.

Fixed interest rate: Lock in a rate for a set period (usually 1-5 years), giving you certainty about your repayments. This can be helpful for budgeting your investment property expenses.

Split loan: Combine both fixed and variable portions to balance security and flexibility.

You might also consider whether to switch to variable after coming off fixed rate, or switch to fixed if you want rate certainty during uncertain economic times.

The Refinance Process for Investment Properties

The refinance application process for an investment property is similar to applying for a new loan, but there are some key differences. Lenders assess your application based on:

1. Your current income and employment situation
2. The rental income from your investment property
3. Your existing debts and expenses
4. The property valuation to determine your equity position
5. Your credit history and repayment behaviour

Your lender will arrange a property valuation to confirm your property's current market value. This helps determine how much equity you can access and whether you need to pay Lenders Mortgage Insurance.

Releasing Equity to Grow Your Portfolio

One of the most powerful reasons to refinance an investment property is equity release. As your property increases in value and you pay down your loan, you build equity. This equity can become the deposit for your next investment property.

For example, if your Cobbity investment property was worth $600,000 when you bought it and is now valued at $750,000, and you've paid down your loan from $480,000 to $420,000, you've got substantially more equity to work with. Through a refinance mortgage, you can release equity to buy the next property while maintaining your current investment.

Many investors use this strategy to consolidate into their mortgage and expand their portfolio without needing to save another full deposit.

How Much Can You Save?

The potential savings from refinancing depend on several factors:

• The difference between your current and new interest rate
• Your remaining loan amount
• The loan term remaining
• Any fees associated with the refinance process

Let's say you have a $500,000 investment loan at 6.5% with 25 years remaining. If you refinance to a lower rate of 6.0%, you could save around $280 per month, or over $3,300 per year. That's money that could go towards your next investment or into your offset account to reduce interest further.

Why Work with a Mortgage Broker?

Comparing refinance rates and loan features across dozens of lenders is time-consuming. A mortgage broker who understands investment property lending can:

• Compare current refinance rates from multiple lenders
• Help you understand different loan features and structures
• Assess whether you can access a lower interest rate based on your situation
• Guide you through the refinance application process
• Identify opportunities to access equity or improve your loan structure

At KM Financial Service, we specialise in investment loans and understand the unique needs of property investors in Cobbity and surrounding areas. We can conduct a comprehensive loan health check to identify whether refinancing makes sense for your situation.

Costs to Consider

While the goal is to save money refinancing, there are costs involved:

• Discharge fees from your current lender (typically $300-$500)
• Application fees for your new loan
• Property valuation fees (usually $200-$300)
• Possible break fees if you're coming off fixed rate early
• Government registration and transfer fees

These costs should be weighed against the potential savings. In most cases where you're accessing a significantly lower interest rate, the savings will outweigh the costs within 12-24 months.

Taking the Next Step

If you've been wondering when to refinance your investment property, now might be the right time to explore your options. Whether you're looking to access equity for another investment, reduce your interest rate, or improve your loan features, a professional assessment of your situation is the first step.

Don't let your investment property sit on an outdated loan that's costing you money. A comprehensive home loan health check can reveal opportunities you might not have considered.

Call one of our team or book an appointment at a time that works for you. We'll review your current situation, compare refinance rates, and help you understand how much you could save or how much equity you could access to grow your investment portfolio.