February 1, 2018
Just like your home mortgage, it’s important to know how to refinance your investment property to make sure you’re getting the most out of your loan. It’s easy to overlook your investment loan, especially when your property is bringing in a decent rental income.
However, to be a smart, successful investor – and to grow your wealth and better cushion your portfolio against risk – checking in to see if the current financial structure of your investments is optimised is essential. Especially for an investment as dynamic and large as real estate. If you don’t, you could miss out on tremendous savings and opportunities. For example, depending on where investment property refinance rates are right now, you could potentially save thousands by switching to a loan with a cheaper rate before rates go back up.
Why throw away thousands of dollars?
You can also refinance to unlock your equity for other financial goals, such as covering the costs of a major expense or investing in another property. The real estate market never stays the same. By paying attention to when and where opportunities are, you are in a better position to grow your portfolio.
Knowing what steps you need to take to refinance your investment property, you are always ready for opportunity.
There’s no hard and fast rule for how often you should refinance when you have an investment property. What you should do, say experts like John Symond, Founder of Aussie, is do a home loan check once a year. Evaluate your financial goals – do you have a big expense in the near future like education costs, a home renovation project, a new car, a new property you have your eye on, or have you taken on high-interest credit card debt you want to get rid of? Refinancing can be a way to help you meet those goals.
Do you expect your financial situation to change? If you are planning on starting your own business next year or retiring in a few years, you may want to refinance your investment property now when you’re still earning a consistent income. Waiting until your income changes, you may not be able to qualify for the same loans you could get right now.
What about refinancing rates on investment loans? If they are consistently at least half a percentage point lower than the rate you’re paying with your current lender, you may want to ask your current lender for a lower rate or change loans.
When you do your yearly financial check-up and decide it may be a good idea to refinance soon, you might be wondering, what should you do next?
The answer – your refinancing homework:
Decide how much you can borrow.
Research investment loan options.
Get your paperwork ready.
Consider talking to a mortgage broker or other financial specialist.
Once you have done your research and are ready to apply, refinancing your investment loan is easy.
- Fill out your application for your new loan.
- Hand in your paperwork to your lender.
- Wait for your loan approval.
- Sign your new loan contract and close the deal. Your new bank will take care of paying off your old loan with the funds for your new one.
Now, you can enjoy paying down your refinanced loan, tailored to your current financial situation. If you unlocked equity, you can use that money for your next investment or other financial goals.
As with most financial transactions, there are risks.
- You’ll have to pay fees to refinance. Make sure you understand what these are so you can accurately weigh the costs against the advantages.
- There’s always the risk your properties will fall in value. This can become a problem if you need to refinance later, or if you decide to sell your property, you could incur a loss.
- Be wary of carrying multiple investment loans with one bank. Multiple loans can be cross-collateralised. This means, if one property falls in value, your lender could request that you pay more to top off the debt. In some cases, they may ask that you sell one of your properties.
As long as you are aware of the risks involved, you can take steps to mitigate them. Often, not refinancing comes with more risk than going through the process and saving money. The goal when you have an investment property – or ten – should be to always stay on top of your finances, do your research, and combine what you know with the guidance of the experts, such as your financial advisor, tax accountant, and mortgage specialist.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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