Am I eligible to refinance my investment loan?
- You must owe less than 80% of the property value on your investment loan.
- You can refinance at any time (if you owe less than 80%) if you’re on a variable interest rate.
- You can refinance on a fixed rate if you find that you’re likely to recoup the cost of early exit fees within the first two years of refinancing (applies to borrowers releasing equity to purchase another investment property).
Find out if you’re in a position to refinance an investment loan by calling 1300 889 743 or by completing our online enquiry form today.
Can I access equity to buy another investment property?
- You can borrow up to 80% of the value of your current investment property.
- You’ll need to provide a letter from your conveyancer confirming you’re searching for a property or a copy of the Contract of Sale when you’ve found one.
Should you release as much equity as you can?
A common strategy that professional property investors use is to release as much equity as you can when interest rates are low and put those funds in an offset account.
The reason is that in this type of lending environment, banks tend to tighten their equity release policies because they’re expecting the real estate market to take a downswing in the medium term.
Put your offset account to work!
Having the equity in an offset account means you can easily access these funds when you need them and not have to work to get exceptions with your bank.
For example, you can choose to make extra mortgage repayments to maximise your capital position or take advantage of other investment opportunities.
Did you know that an offset account is split between the loan facility and the deposit account?
For tax purposes, you’re typically better off keeping most of the unused funds from refinancing into the deposit account.
That’s because you can’t claim a tax deduction on principal payments on an investment loan.
Do I choose a fixed or variable rate?
Fixing your interest rate is not generally a good idea if:
- You want to make extra repayments on your investment loan to maximise your capital position.
- You plan to sell the property in the immediate future (property flipping).
Check out our complete guide on fixed versus variable.
Should I refinance to interest only payments?
Whether you’re currently making interest only (IO) payments on your home loan or not, does it always make sense to refinance to interest only?
It depends on your investment strategy and the market.
In an environment where variable rates are lower than fixed rates, you’re typically better off choosing an interest only term and building up your offset account balance to maintain stable cash flow.
The capital management benefits are significant if you want to continue to grow your property portfolio or you’re pursuing a property flipping strategy and need funds for renovation work.
However, refinancing to interest only rather than principal and interest (P&I) repayments may not be the best approach if you want to be in a positively-geared position in the short-term.
It’s essential that you seek professional advice from a qualified account to consider what your financial goals are.
After that, give us a call on 1300 889 743 or fill in our online enquiry form and we can let you know if you qualify for an interest-only investment loan.
What are the costs of refinancing an investment loan?
- Home loan set up costs and a loan application fee for your new home loan if you refinance to another lender.
- Exit fees.
- A settlement fee for your old mortgage and a discharge fee.
- Break costs if you refinance within the fixed loan period.
- Lenders Mortgage Insurance (LMI) if you refinance above 80% of the property value.
- Other fees may apply.
Refinancing costs vary depending on whether you’re just switching to get a better interest rate, switching products but staying with the same lender, or switching to a new lender completely.
If you’re switching lenders, check out our mortgage discharge forms page so you can be prepared and fast-track the application process.
Should I cross-securitise or release equity?
Are you planning to refinance multiple properties under the same investment loan?
You may want to consider splitting the properties up into separate loan facilities rather than continuing to cross-collateralise.
There are several benefits to this:
- By avoiding concentration risk, you can shield yourself from heavy blows in a significant market downturn.
- You’re able to better protect your home from a forced sale by the bank.
- It’s much easier to refinance your investment loan again in the future because the bank won’t need to value all of the properties linked to the one mortgage.
- It’s much easier to find a lender that will accept one property type compared to an entire property portfolio of multiple different property types.
- You’re in a stronger position to choose interest-only payments rather than being required to P&I repayments.
Of course, there some pros to cross-collateralisation so check out our ultimate guide and then get in touch with us and tell about your investment goals.
Should I keep rentvesting or use equity to buy my first home?
If you’re currently renting and own a rental property, you may be considering whether to access the equity to buy another investment or to buy your first home.
It depends on what’s more important to you: your financial goals or your lifestyle goals.
Also, your landlord will cover the cost of maintenance and repairs for where you live.
Buying a home is better for avoiding capital gains tax but, more than this, buying your first home is a long-term lifestyle decision, particularly if you’re planning to start a family soon.
For example, not having to worry about being evicted and having to uproot on a regular basis when your lease ends is a plus.
Tax deductions when refinancing an investment loan
Did you know that the costs of moving from one lender or home loan product to another are tax deductible?
These costs include the upfront application costs, the ongoing loan fees, and an exit or discharge fees that may apply when switching to your new loan.
Ongoing expenses for a low doc loan can be a goldmine for negative gearing because the fees are generally higher. Self-employed borrowers listen up!
Generally speaking, you can claim the first five years of these property ownership expenses immediately if you refinance within this period.
It’s essential to speak with an experienced accountant that understands how to maximise your negative gearing benefits when refinancing.
If you’re still a couple of years away from refinancing an investment loan, the first step to success is to keep your investment property tax documents prepared and ready for your accountant.
Refinancing to turn your home into an investment property
You can’t claim interest payments on the equity loan because the equity loan has been used to purchase a non-income producing asset.
The exception is if you had been using an offset account on your owner-occupied mortgage.
By accessing the equity in your home, the balance in the offset account will reduce, and you can claim a tax deduction on the interest on the new loan amount.
The above is general information only and shouldn’t be considered as tax advice.
It’s essential that you speak to an accountant or a property tax specialist.
Refinance an investment loan today
Call us on 1300 889 743 or complete our free assessment form to start your refinancing journey!