With hundreds of thousands of mortgages rolling off fixed rate terms and property owners facing the mortgage cliff as they jump to higher variable repayments, a lot of investors are wondering whether now is a good time to refinance.
Reserve Bank of Australia (RBA) data shows there will be 450,000 mortgages coming off fixed terms in 2024.
The cash rate has been on hold since November at 4.35%, but many economists now expect the RBA’s next move to be a cash rate cut – likely a 25-basis point easing in the cash rate at the RBA’s September 23-24 board meeting.
So, should you hold and wait to see what the RBA does, or should you shop around for a more competitive loan now? It all depends on your current mortgage rate, your financial goals and whether the benefit of refinancing outweighs the cost involved.
However, at the very least, it always pays to explore your options, especially when it comes to something as costly as your investment property.
Why it pays to consider refinancing
Refinancing your loan can allow you to access the equity in your property. Equity is the proportion of the property you own.
Say the property is worth $800,000 and you owe $200,000 to the bank. You have $600,000 in equity.
Savvy property investors use their equity for a variety of purposes:
- To renovate and add value to their investment property,
- As a deposit for their next investment property, or
- To fund their lifestyle and living expenses.
Another popular reason to refinance is to secure a more competitive interest rate or a loan that better suits your needs.
There may also be loan features that could improve your interest savings or cash flow like offset accounts and redraw facilities.
Key considerations before refinancing
1) How much equity do you have?
Generally, the right time to refinance your investment property is when the equity has grown sufficiently to take the next step in your investment strategy or to fund your renovation plans.
To get an idea of the value of your property and how much equity you have, you can:
- Ask us for a free property profile report with the latest market insights.
- Talk to local real estate agents for a market value estimate.
- Pay for a professional property valuation (a formal valuation will likely be required by the lender before they will allow you to refinance).
2) What is the cost of refinancing?
Switching lenders and refinancing your investment loan can help you achieve your goals, but there are costs involved.
These may include break fees or discharge fees, establishment fees for your new investment loan, and valuation fees.
Speak to us and we’ll run you through the costs and help you decide whether refinancing is worthwhile right now, or if it may be better to wait until your equity has grown further.
3) How is the market performing?
Part of the decision about whether to refinance will depend on how the property market is performing for your investment.
Nationally, property prices have been increasing in many capital cities in recent months and investors have been flooding back into the market.
Data from the Australian Bureau of Statistics shows lending to investors has jumped almost 20 per cent in the past year. Almost 4 in 10 people taking out a mortgage now are landlords.
If property prices were decreasing and you were facing negative equity territory, you probably wouldn’t be thinking about refinancing. But if your property value has increased, it may be the right time to weigh up your finance options.
Talk to us today
If you’re wondering whether refinancing is right for you, we can help you decide.
Whether you’re wanting to access equity to grow your investment portfolio or renovate, or you simply want to check that your investment loan is competitive, we’re here to help.
