How to Refinance an Investment Property Loan
If you have an investment property, you may be thinking of refinancing your investment property loan. Mortgage brokers often recommend that borrowers review their loan every two or three years and refinance if there is a product on the market that suits their needs better than the current loan. If the time has come around for your regular mortgage health check, or you have a pressing reasons for considering a refinance, it might be helpful to consider some of the advantages and disadvantages of refinancing your investment property.
Reasons for refinancing investment property
If you’ve held your investment property for a little while it’s likely that your personal and financial circumstances have changed since you took out your investment property mortgage. In Australia the home loan finance market is very competitive and it’s likely that, even if your needs haven’t changed much, a new home loan product has been designed that offers more advantages than your current loan. Some of the most common reasons for refinancing are:
- Improving your overall investment outcome. If the value of your investment property has grown strongly you might want to access the equity for further investment. The funds raised from refinancing could be used either to add value to the existing investment property, or as a deposit for the purchase of an additional investment property. If you’re thinking of refinancing to upgrade your investment property, it makes sense to limit the upgrade to improvements that fit your overall investment strategy – for example small cosmetic improvements like painting interior walls or returfing lawns could enhance the property’s rental potential without risk of overcapitalising.
- Improving cash flow. Refinancing is an opportunity to switch to a loan on better terms than your existing loan: you might want to change from a fixed interest rate to a variable rate, move from a “no frills” loan to one with more flexible features or vice versa, or you might want to increase or decrease the length of the loan period. When you’re refinancing to get better interest rates it’s important to research a wide range of lenders and loan types as there are often wide variations between different products.
- Raising funds. You might be thinking of releasing the equity in your investment property to raise cash for another project, like school fees, a new car, or reducing your credit card debt. It will be useful to consider these projects in the context of your long term goals, for example an investment in your children’s education is a different proposition from buying a new car that rapidly depreciates.
Comparing loans
When you’re researching refinance loans, you need to be sure that you don’t switch to a new loan unless it offers you a better outcome than the current loan. You should be comparing new loans with each other, and with your current loan, with particular focus on:
- The cost of loans. Comparisons of the amount of monthly repayments, and the amount of interest paid over the total length of the loan, are relevant here. These comparisons will highlight the effects of varying interest rates and loan lengths.
- The features of loans. When comparing loans it’s important to be aware of the features offered with different products and to decide what features are advantageous to you and worth paying for in the form of higher interest rates. For example, you’ll be weighing up the advantages of lower interest rates on a standard loan as compared with higher interest rates on a loan with more flexible features that you could use to save money by repaying your loan more quickly.
- Changeover costs. When you’re investigating alternative loans it’s vital to have calculated the costs involved in switching from your current loan as opposed to staying with it. You could be charged a few hundred dollars for establishing the new loan, and there could be stamp duties or other taxes to pay to the government. If there is a high charge for early repayment of your current loan, it should be set against any potential savings with a new loan. Looking even further ahead, if you’re likely to be refinancing again in a few years, make sure that a new loan doesn’t have a punitive early repayment fee.
Related posts:
- How to Refinance an Investment Property and not lose money
- When Is It Time To Refinance Your Mortgage?
- Refinance Options
- Mortgage Refinance
- Interest Only Refinance
- Westpac Fixed Rate Investment Property Loan Interest Only in Advance
- Need to Refinance
- HSBC Investment Property Home Loan – Buying Investment properties with HSBC
- Refinance Real Estate Loan
- House Mortgage Refinance
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