All about refinancing an investment property

Published on December 3rd, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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If you’re looking to renovate an already existing portfolio or are trying to access funds for a further investment, refinancing an investment property might be a good option for you. This type of refinancing might provide you with different means of accessing the equity that your property has already gathered.

Most Australians see property investment as a means of achieving financial independence. Since unemployment rate in Australia reached an average of 5.6% in May 2016, people kept encountering difficulties with their investments. This is why they might look to home loan experts to help them refinance their property.

Why Should You Invest In a Property?

Buying an investment property has more advantages to it when you compare it with other assets. The reason for that is because:

  • A good property is always hard to find, which is why there is a limited supply available. Those are generally found within well-established suburbs.
  • Since the property market in Australia is pretty stable, a good property will be in demand even if the times are tough.
  • The lenders will be looking favourably when investing in a property, which is why you might have the opportunity of borrowing larger amounts of money.

At the same time, you can also access capital gains and rental income, allowing you to pay your mortgage much faster and offering access equity for you to invest further.

Why Should One Refinance a Property?

It is never a bad idea to buy an investment property. It can be difficult, however, to buy further investments if you have a home loan to pay, for example. In cases like these, refinancing sounds like a pretty good idea. Here’s an example of how refinancing may work:

Mary has an investment property that is worth about $600,000. She also owes about $300,000, which gives her about $300,000 in equity. Mary came to the conclusion that if she wanted to buy another investment property, she needs to talk with her financial planner. She thus refinances her existing property and gains access to the $300,000 equity. Using this money, Mary can buy a new investment property, and will use the income of the rental to pay off the mortgage.

Sounds simple, doesn’t it? This is how easy you can get a new investment by refinancing the one you already had. Remember that if you want to profit from the refinance, you need to bring your equity at a proper level. Depending on the state of the home, the average equity rates will be between 40% and 75%.

Are There Any Risks that Go with Refinancing?

You can quickly gain access to equity to purchase more investments. However, nothing is without risks. Here is what you need to know when refinancing a property.

  • Whether or not the property’s value drops, you will still be required to pay off the mortgage.
  • If your property can’t cover your mortgage, you will need to use your own money to cover the gaps.
  • You might end up having more things to fix if your tenants don’t take care of the property.
  • Refinancing generally comes with other costs attached, so make sure you’re well-documented.

Refinancing your investment property is a great way to go if you’re looking to increase the value of your property or gain access to funds. If you talk to an experienced agent, you will grow your portfolio with low-interest finance!

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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