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Record low-interest rates won’t be around forever, so if you’re currently not happy with your rate it could be worth refinancing and getting a better deal. That’s exactly what many Australians are currently doing if recent figures are anything to go by.
According to the latest data from the Australian Bureau of Statistics (ABS), $16.05 billion worth of home loans were refinanced from one bank to another during October 2021 - one of the highest ever levels recorded by the ABS.
However, refinancing an investment property loan is a little bit different from refinancing an owner-occupier loan. Here are five things you should know before securing a better deal.
1. The cost of refinancing
Even though refinancing to a better rate can save you money down the track, it will initially cost you a bit of money. There are several costs which may be attached to refinancing, such as the application fee, discharge fee, settlement fee, mortgage registration fee, exit fee, and so on.
With that said, interest rates for investor loans are generally a bit higher than rates on owner-occupier loans so refinancing to a lower rate will generally work out to be cost-effective in the long run. You may even be able to recoup most, or all of these costs after a few months of repayments, or within the first few years.
2. Tax deductions
One of the perks of being a property investor is the number of tax deductions you may be able to take advantage of. If you’re refinancing an investment loan, did you know that you might be able to claim a tax deduction for the borrowing costs and exit fees? There are some cases where this can apply which is why it's recommended to speak with your tax adviser first.
3. Your loan to value ratio (LVR)
When you’re refinancing, the higher your loan to value ratio (LVR) the lower your equity, and the higher the risk you represent to the lender. If you have a high LVR, the lender may charge you a higher interest rate to offset this risk. Investment loans generally have stricter LVR requirements and many lenders won’t even allow you to refinance unless your LVR is at least 75% or below.
4. Credit rating
Your credit score plays a big role in determining what interest rate you’ll pay on your loan - the higher your credit rating is, the less risky you are in the eyes of the lender. For investors, having a good credit score is especially important as there are tougher lending restrictions on investment loans.
Refinancing represents an application for credit, which will appear on your credit report and can influence your credit score. If you refinance too often, lenders may be wary about allowing you to refinance.
5. Proof of income
When refinancing a mortgage, investors are scrutinised more than owner-occupiers. Investors need to provide more documentation of proof of income, including tax returns and salary slips, rental income received from the property, and so on. In cases where the property has been vacant for some time, or where rental income has been intermittent, some lenders may not consider the rent to be part of your income at all.
Why should you refinance your investment loan with loans.com.au?
We make refinancing your investment loan easy, whether you have one investment property or five. At loans.com.au, refinancing is as simple as applying online in under two minutes, chatting with one of our lending specialists, and uploading your documents into our onTrack app. After this, you’ll sign your loan documentation, we’ll pay your existing lender then you’ll settle!
Our rates are super competitive, starting from as low as 1.99% p.a.* (2.71% p.a. comparison rate*) for our popular Smart Investor Bundle when you get both an investment and owner-occupied loan with loans.com.au, and from 2.99%* (3.01% p.a. comparison rate*) for our Smart Investor loan. We’re here to help as little or as much as you need, and most importantly, save thousands on your investment loan.''
*Conditions apply. The comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
Marie Mortimer is Managing Director of loans.com.au, one of Australia's largest online lenders. Since Marie started the business 10 years ago, Marie has grown loans.com.au into a company with $6 billion worth of home and car loans. Marie is dedicated to improving financial literacy for all Australians and is passionate about the FinTech industry in Australia. When she isn't at work, she loves to spend time with her husband and two young children.
loans.com.au is an online lender for home and car loans. For 10 years, Aussies have trusted the locally based loans.com.au team to support them with low home loan and car loan rates, approved quickly through the online loans.com.au app.