How To Refinance An Investment Property

Refinancing an investment property can be a great way to save money on your monthly mortgage payments, cash out some equity, or change the terms of your loan. However, before you can refinance, you’ll need to meet certain requirements.

This article covers the steps involved in the refinancing process, the requirements you’ll need to meet, and the benefits of refinancing your investment property. 

Pros and Cons of Refinancing an Investment Property

Refinancing offers several advantages, however it also has its own cons. Here are some of the major pros and cons of refinancing an investment property.

Pros of Refinancing an Investment Property

  • Lower interest rate: If interest rates have fallen since you originally took out your mortgage, you may be able to refinance and get a lower interest rate. This could save you hundreds or even thousands of dollars each year on your monthly mortgage payments.
  • Cash out equity: If you’ve built up equity in your investment property, you may be able to refinance and cash out some of that equity. This money could be used for a variety of purposes, such as paying off debt, making improvements to the property, or investing in other properties.
  • Change the terms of your loan: If you’re not happy with the terms of your current mortgage, such as the interest rate, length of term, or payment frequency, you may be able to refinance and change those terms. This could make your mortgage more affordable or flexible.
  • Access to new features: Some lenders offer new features with their investment property loans, such as redraw facilities or offset accounts. These features can help you save money on your mortgage payments or make your finances more flexible.

Cons of Refinancing an Investment Property

  • Closing costs: There are closing costs associated with refinancing, such as application fees, legal fees, and appraisal fees. These costs can add up, so it’s important to factor them into your decision to refinance.
  • Interest rate risk: If interest rates rise after you refinance, your monthly mortgage payments could go up.
  • Early repayment penalties: If you break your current mortgage early, you may be charged an early repayment penalty. This penalty can be expensive, so it’s important to understand the terms of your current mortgage before you refinance.

Get a free Australian mortgage assessment today.

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Factors to Consider When Deciding Whether or Not to Refinance Your Investment Property

There are many factors to consider when deciding whether or not to refinance your investment property. Here are some of the most important factors:

Your Current Interest Rate

f your current interest rate is already low, you may not see much benefit from refinancing. However, if your current interest rate is high, you could save significantly by refinancing.

The Amount of Equity You Have in Your Property

If you have a lot of equity in your property, you may be able to get a lower interest rate or cash out some equity. However, if you have little equity, you may not be able to refinance, or you may have to pay a higher interest rate.

The Closing Costs

There are closing costs associated with refinancing, such as application fees, legal fees, and appraisal fees. These costs can add up, so it’s important to factor them into your decision.

Your Financial Situation

If you’re facing financial difficulties, refinancing may not be the best option for you. You’ll need to make sure that you can afford the higher monthly payments that may come with a new loan.

The Length of Your Current Loan

If you have a long-term loan, you may be able to save money by refinancing into a shorter-term loan. However, you’ll need to make sure that you can afford the higher monthly payments.

The Interest Rate Environment

If interest rates are expected to rise in the future, you may want to refinance now to lock in a lower interest rate. However, if interest rates are expected to fall, you may want to wait to refinance.

Get Quotes From Multiple Lenders

It’s important to compare interest rates and fees from multiple lenders before you make a decision. This way, you can choose the one that is cheaper and suitable for your personal needs.

Factor In Closing Costs

Don’t forget to factor in the closing costs when you’re comparing different loan options. These costs can add up, so it’s important to know what you’re getting into.

Consider Your Financial Situation

Make sure that you can afford the higher monthly payments that may come with a new loan. Otherwise, you’ll just be trapping yourself under a financial burden you can’t bear to withstand.

Think About Your Long-Term Goals

If you plan to sell your property in the near future, you may not want to refinance. However, if you plan to hold onto your property for the long term, refinancing may be a good option.

What to Expect During the Refinancing Process

The process of refinancing a rental property or investment property is similar to refinancing a primary residence. However, there are some key differences.

Here are the steps involved in the process:

Gather Your Documents

You will need to gather a number of documents before you can start the refinancing process. These documents will include your most recent tax returns, pay stubs, and bank statements.

You will also need to provide information about your rental property, such as the property’s address, value, and rental income.

Shop Around for Lenders

Once you have gathered your documents, you can start shopping around for lenders. It is important to compare interest rates and fees from multiple lenders before you make a decision.

Apply for a Loan

Once you have chosen a lender, you will need to apply for a loan. The lender will review your application and decide whether or not to approve you for a loan.

Get an Appraisal

The lender will also require an appraisal of your property. The appraisal will determine the current value of your property.

Close The Loan

Once the lender has approved your loan and the appraisal has been completed, you can close the loan. This is the final step in the refinancing process.

Be Prepared To Answer Questions About Your Rental Property

The lender will want to know about your rental property’s income and expenses. They will also want to know about your tenant’s history.

Make Sure You Understand The Closing Costs

There are closing costs associated with refinancing, such as application fees, legal fees, and appraisal fees. These costs can add up, so it’s important to understand them before you close the loan.

Consider Your Long-Term Goals

If you plan to sell your property in the near future, you may not want to refinance. However, if you plan to hold onto your property for the long term, refinancing may be a good option.

Unforeseen Challenges of Refinancing an Investment Property

Refinancing an investment property can greatly save money on your monthly payments and improve your cash flow. However, there are some unforeseen challenges that you may encounter during the process. Here are a few of the most common:

The Property's Value May Have Decreased

The value of your investment property may have decreased since you originally took out the mortgage.

This could make it more difficult to qualify for a refinance, or it could mean that you won’t be able to save as much money on your monthly payments.

The Rental Market May Have Changed

The rental market in your area may have changed since you originally took out the mortgage.

This could mean that you’re not able to rent your property for as much as you used to, which could impact your ability to afford the new mortgage payments.

There May Be New Regulations

There may be new regulations in place that affect investment properties. These regulations could make it more difficult or expensive to refinance your property.

Your Personal Financial Situation May Have Changed

Your personal financial situation may have changed since you originally took out the mortgage. This could affect your ability to qualify for a refinance, or it could mean that you’re not able to afford the new mortgage payments.

It’s important that you carefully assess your situation. Be aware of these potential challenges so that you can be prepared for them. 

Refinance with Odin Mortgage

If you’re considering refinancing your investment property, talk to our mortgage brokers at Odin Mortgage to get personalized advice. 

Odin Mortgage is a leading Australian mortgage service provider for Australian expats and foreign nationals globally. We provide mortgage advice and services to help you purchase a property or refinance your existing home loan in Australia.

Contact us today.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently asked questions

Refinancing an investment property is the process of replacing your existing mortgage with a new one. This can be done for a variety of reasons, such as to obtain a lower interest rate, to shorten your loan term, or to access equity in your property.

The best time to refinance an investment property is when interest rates are low and your property value has increased. This will give you the most savings on your monthly payments.

There are a number of benefits to refinancing an investment property, including:

  • Lower interest rates: If interest rates have fallen since you originally took out your mortgage, you may be able to refinance to a lower interest rate. This will save you money on your monthly payments.
  • Shorter loan term: You may be able to refinance to a shorter loan term, which will also save you money on your monthly payments.
  • Access to equity: If your property value has increased, you may be able to refinance and access some of the equity in your property. This can be used for other investments or to pay off debt.
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