Everything You Need to Know About Refinancing Investment Properties

If your investment property loan hasn't been reviewed in the past two years, you're likely paying more than you need to.

Refinancing an investment property works differently to refinancing your own home. Lenders assess income, rental yield, and equity differently, and the features that matter most to landlords aren't always the same as those for owner-occupiers. For investors in Tanunda and the Barossa, where property values have shifted and rental demand remains steady, a loan health check can reveal opportunities to reduce your loan costs, access equity for your next purchase, or consolidate debt into a single account.

Why Refinance an Investment Property

You refinance to reduce costs, access equity, or improve the structure of your loan. Investment loans often sit on higher rates than owner-occupier loans, and if you haven't reviewed yours in a few years, you may be paying 0.5% to 1% more than what's available now. That difference compounds over time. On a loan amount of $400,000, a 0.7% reduction in your interest rate saves roughly $2,800 a year.

Refinancing also lets you release equity to fund another deposit without selling. Consider a property owner in Tanunda who bought an investment property several years ago and has seen modest capital growth. If the property was purchased at $350,000 and is now valued closer to the current median, that equity can be accessed through a cash out refinance to help fund a deposit on a second investment or to complete renovations that improve rental yield.

In our experience, the most common reason investors refinance is to consolidate personal debt into the mortgage at a lower interest rate, which improves cashflow. If you're carrying a car loan or personal loan at 8% to 12%, rolling that into your investment mortgage at a variable interest rate closer to 6% reduces your monthly repayments and simplifies your loan structure.

When to Consider Refinancing

Refinance when your loan no longer fits your circumstances or when rates have moved enough to make the change worthwhile. If your fixed rate period is ending and you're coming off a fixed rate into a much higher variable rate, that's the moment to review. Many investors locked in rates two to three years ago and are now facing revert rates that don't reflect what's available in the current market.

Another trigger is when you want to access equity but your current lender won't let you increase the loan or charges a high rate to do so. Some lenders also limit features like offset accounts or redraw on investment loans, which can hurt cashflow if you're managing multiple properties. If your loan doesn't include an offset account and you're holding surplus rental income in a savings account, you're paying tax on that interest instead of offsetting it against your mortgage.

You should also refinance if your property valuation has improved and you're now paying lender's mortgage insurance or a higher rate because your loan-to-value ratio was above 80% when you first borrowed. As equity builds, refinancing can remove that cost.

How the Refinance Process Works for Investment Properties

The refinance application process for an investment property includes a property valuation, an income assessment that factors in rental income, and a review of your serviceability across all loans. Lenders will assess your ability to service the loan using a combination of your personal income and the rental income from the property, though most will only count 80% of the rent to allow for vacancies and maintenance.

Consider a scenario where an investor in Tanunda owns a rental property generating $420 per week and works full-time earning $85,000 a year. The lender will count roughly $17,500 of the rental income toward serviceability, then assess whether the combined income can cover the new loan amount plus any other debts. If the investor also has a car loan with $15,000 outstanding, rolling that into the mortgage during the refinance can improve serviceability and unlock more equity for future purchases.

The property valuation is done by the new lender, and in regional areas like Tanunda, valuers rely on recent sales in the area rather than automated models. If comparable sales are limited, the valuation may come in lower than expected, which affects how much equity you can access. We regularly see this in smaller towns where sales volume is lower, so it's worth setting realistic expectations before applying.

Once the refinance is approved, settlement usually takes three to six weeks. Your existing loan is paid out, any equity release is deposited into your account, and your new loan begins. There's no need to move properties or change tenants. The process happens in the background.

Fixed or Variable for Investment Properties

Variable interest rates give you flexibility to make extra repayments and access features like offset accounts and redraw, which are valuable for managing rental income and irregular expenses. Most investment property owners benefit from keeping the loan on a variable rate so they can offset rental income and reduce the interest charged each month.

Fixed interest rates lock in your repayments for a set period, which can help with budgeting if you prefer certainty. However, fixed rates on investment loans are typically higher than owner-occupier fixed rates, and most fixed loan products don't include offset accounts. If you're holding surplus cash or rental income, you'll pay tax on that interest instead of using it to reduce your loan.

Some investors split the loan between fixed and variable, which gives you partial rate protection while maintaining access to an offset account on the variable portion. If you're refinancing and your fixed rate period is ending, you can choose to lock in part of the new loan or switch entirely to variable depending on your cashflow needs and risk tolerance.

Accessing Equity Without Selling

You can access equity in your investment property by refinancing to a higher loan amount and taking the difference as cash. This is called a cash out refinance, and it's one of the most common ways investors fund their next deposit without selling an existing property. Lenders will usually let you borrow up to 80% of the property's current value without paying lender's mortgage insurance, so if your property has increased in value or if you've paid down the loan, that equity becomes available.

As an example, an investment property purchased for $320,000 several years ago may now be valued higher due to steady demand in the Barossa region. If the remaining loan amount is $250,000 and the property is revalued, the owner may be able to refinance up to 80% of the new valuation and release the difference. That equity can then be used as a deposit on another property, to fund renovations, or to consolidate other debts.

Releasing equity increases your loan amount and your repayments, so it's important to run the numbers before proceeding. If the rental income covers the increased repayments and you're using the funds to generate additional income or reduce higher-interest debt, the strategy makes sense. If it stretches your serviceability too far, the refinance may not be approved or may leave you with less cashflow than you need.

Features That Matter for Investment Loans

An offset account is one of the most valuable features for investment property owners. It lets you park rental income and surplus cash in a linked account, and the balance in that account reduces the interest charged on your loan. Unlike a redraw facility, the money in an offset account remains separate from the loan, which can make tax reporting simpler.

Redraw facilities let you access extra repayments you've made on the loan, but some lenders limit how often you can redraw or charge fees for each withdrawal. If you're planning to make extra repayments and access those funds later, check the redraw conditions before refinancing.

Some lenders also offer the ability to split your loan into multiple accounts, which is useful if you're managing more than one investment property or if you want to separate fixed and variable portions. You can also consolidate multiple investment loans with one lender to simplify your loan review and reduce paperwork.

What It Costs to Refinance

Refinancing involves discharge fees from your current lender, application fees with the new lender, and sometimes valuation fees or legal costs. Discharge fees are usually between $300 and $500, and application fees vary depending on the lender. Some lenders waive application fees as part of a refinance offer, but it's worth confirming before you proceed.

You'll also need to factor in the cost of breaking a fixed rate if you're refinancing before the fixed rate period ends. Break costs can be significant if rates have fallen since you locked in, so it's worth calculating whether the saving from refinancing outweighs the break cost. If your fixed rate period is ending within the next few months, it's usually simpler to wait until expiry before refinancing.

Most lenders will let you add some of these costs to the loan amount, but doing so increases your debt and your repayments. If you're releasing equity as part of the refinance, you can use part of that to cover the costs instead.

Call one of our team or book an appointment at a time that works for you. We'll review your current loan, run the numbers on what's available, and help you decide whether refinancing makes sense for your investment property.

Frequently Asked Questions