Refinancing tips for investment properties

Whether you’ve been lumped with a high-interest rate or want to unlock the equity in your current investment property, there are many reasons you may want to refinance.

If you haven’t checked to see if your investment loan is still competitive, you may find that you’re signed up to an out-of-date mortgage with an uncompetitive interest rate.

The good news is that there are some really competitive home loan interest rates around at the moment, so it’s likely you can score a better deal.

Here are some things to consider when refinancing your investment property.

Consider the costs of the refinancing process

Refinancing can potentially be very cheap or very expensive.

There are a variety of fees which can add to the upfront costs of refinancing a home loan. What these fees cost will largely depend on the lender. Some lenders may even waive certain fees (like application fees) but charge you higher ongoing fees instead.

Of the fees to consider are application fees, valuation fees, discharge fees, break fees, settlement fees, mortgage registration fees, exit fees and of course - your valuable time and effort.

At loans.com.au, there is no application or any ongoing monthly or annual fees. We charge a once-off $220 valuation fee to assess what your home is worth and a $300 settlement fee once you settle your home loan with us.

Choose a shorter loan term

Instead of restarting at 30 years which is generally the default option, consider a shorter loan term.

If you’ve already been paying off your mortgage for a few years, refinancing to a new 30-year term just means you’ll extend the time it takes for you to be debt-free and you’ll also wind up paying more in interest.

But in some cases, it can even be necessary to add time onto your loan term. For example, if you’re purchasing a new property, taking on a few extra years could smooth your monthly repayments and allow you to better manage your cash flow.

Don’t be wooed by honeymoon rates

Lenders sometimes offer rock bottom interest rates as a temporary incentive to lure in borrowers. They may shave 15 or 20 basis points off their standard variable rate for a one or two year period before the rate reverts back to the standard ongoing rate.

These rates are often referred to as ‘honeymoon rates’ or introductory variable rates. For a year or two you’re guaranteed a great discount but once the honeymoon period is over, all bets are off. What once looked like an attractive loan isn’t so appealing anymore.

Instead of paying attention to the honeymoon rate, look at what the lender’s standard variable rate is. A good way to understand what the true introductory rate of a home loan is to look at the comparison rate.

Take a look at our low-rate investment loans here.

Consider switching to P&I after the interest-only term is up

Instead of extending the interest-only term on your loan, consider switching to a principal and interest loan. Your lender will most likely switch you to this automatically.

While doing this means your repayments will rise, you’ll also be paying back the principal of the loan and reducing the amount of debt you owe instead of just paying off the interest.

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