Refinancing Investment Properties: The Pros and Cons

Refinancing an investment property can reduce your interest costs by thousands of dollars each year or release equity to fund your next purchase.

The decision to refinance comes down to whether the numbers justify the effort. For property investors in Officer and Officer South, where values have shifted considerably over recent years and rental yields remain strong, a loan review often reveals opportunities to cut rates, consolidate debt, or access capital that was unavailable when you first borrowed.

Why Refinance an Investment Property

You refinance to reduce your loan costs, access equity, or switch to a loan structure that suits your current strategy. If your investment property is sitting on a rate above what lenders are offering new clients, you're paying more than necessary. If your property has increased in value since purchase, you may now have sufficient equity to fund a deposit on another property without needing to save additional cash. If your fixed rate period is ending and you're about to revert to a higher variable rate, refinancing gives you the option to lock in another term or switch to a variable product with an offset account.

In Officer and Officer South, median property values have grown steadily since the estates around Starling Road and Tivendale Road were first developed. Investors who purchased early in those developments may now hold substantial equity. If you bought a property at $450,000 and it's now valued closer to $600,000, and your loan balance has reduced to $350,000, you're sitting on $250,000 in equity. A lender will typically allow you to borrow up to 80% of the property's value without incurring lenders mortgage insurance, meaning you could access around $130,000 in usable funds.

When to Refinance Your Investment Loan

Refinance when the financial benefit outweighs the cost of switching. If you're paying 6.2% and a new lender is offering 5.8% on a loan amount of $400,000, the annual saving is approximately $1,600. Discharge fees, application fees, and valuation costs might total $1,200, so you're ahead within the first year. If you're planning to sell the property within six months, refinancing rarely makes sense. If you're holding for another three to five years, it often does.

Another trigger is coming off a fixed rate. If your fixed rate period is ending in the next 90 days, most lenders will allow you to start the refinance process now so the new loan settles shortly after your fixed term expires. Without action, you'll revert to your lender's standard variable rate, which is typically higher than the discounted rates available to new clients.

Consider an investor who owns a property in Officer South, purchased during the suburb's growth phase. Their fixed rate expired last month and they've reverted to a variable rate of 6.5%. A refinance to a product at 5.9% on a $500,000 loan amount would save them around $3,000 annually. Over five years, that's $15,000 in reduced interest, assuming rates remain stable. If they also gain access to an offset account and park $20,000 in rental income and reserves, they save interest on that portion as well.

Accessing Equity to Fund Your Next Investment

Releasing equity from an existing property is one of the most common reasons investors refinance their home loan. If your property has increased in value and your loan-to-value ratio has improved, you can borrow against that equity to fund the deposit and purchase costs for another investment property. This approach allows you to expand your portfolio without needing to accumulate savings from your income.

Lenders assess equity release based on your borrowing capacity, the value of the property, and the loan-to-value ratio you're comfortable with. If you're borrowing up to 80% of the property's value, you'll avoid lenders mortgage insurance. If you're willing to go beyond 80%, you can access more capital, but you'll pay LMI and the lender will scrutinise your income and existing debt more closely.

In Officer, where rental demand remains solid due to proximity to employment hubs in Pakenham and Berwick, investors often use equity release as a stepping stone to acquire properties in nearby suburbs. A client holds a property in Officer with a current value of $650,000 and an outstanding loan of $380,000. They want to purchase another property in Pakenham Upper. Refinancing allows them to increase their loan to $520,000, releasing $140,000 in usable equity after costs. That covers a 10% deposit on a $600,000 property, stamp duty, and settlement fees. Their income supports the additional borrowing, and the rental income from both properties improves their cashflow position.

The Costs of Refinancing and How to Weigh Them

Refinancing comes with upfront costs that vary depending on the lender and the complexity of your loan. Discharge fees from your existing lender typically range from $300 to $500. Application fees for the new loan might be waived depending on the lender, but if charged, they sit between $400 and $800. A property valuation is usually required, costing $200 to $400. If you're using a mortgage broker, there's no cost to you as the broker is paid by the lender once the loan settles.

These costs need to be set against the interest savings or the value of the equity you're accessing. If you're refinancing purely to reduce your interest rate, calculate how long it takes to recover the upfront costs. If you're accessing equity, the cost is less relevant because you're funding a new investment or paying down more expensive debt.

Investors should also consider whether they're moving from a loan with a redraw facility to one with an offset account. Both allow you to reduce the interest you pay, but an offset account keeps your funds separate from the loan, which can be important for tax purposes. If you're using a redraw facility and you withdraw funds, the ATO may treat that portion of the loan as non-deductible if the funds aren't used for investment purposes. An offset account avoids that issue entirely.

Fixed Versus Variable After Refinancing

When you refinance, you'll need to choose between a fixed rate, a variable rate, or a split. A variable rate gives you flexibility to make extra repayments, access an offset account, and adjust your loan structure without penalties. A fixed rate locks in your repayments for a set period, which can help with budgeting but limits your ability to make extra repayments and usually means you'll lose access to an offset account during the fixed term.

For investment properties, variable rates with an offset account are often preferred because they allow you to deposit rental income and reserves into the offset, reducing the interest charged without affecting your ability to access those funds. If you're concerned about rate rises, a split loan lets you fix a portion of your loan while keeping the rest variable.

In our experience, investors in growth areas like Officer South often favour variable products because they want the option to refinance again if equity continues to grow or if they identify another investment opportunity within a short timeframe. Fixing a rate for three years may offer certainty, but if values rise and you want to access more equity in 18 months, you'll face break costs to exit the fixed portion early.

How a Loan Review Works for Investment Properties

A loan health check starts with understanding your current loan structure, your property's value, and your borrowing capacity. We compare your existing rate and features against what's currently available, assess whether you have usable equity, and calculate the financial impact of switching lenders or restructuring your debt.

If you hold multiple investment properties, the review also considers how those loans interact. Consolidating loans onto a single facility can simplify administration, but splitting them across different lenders can sometimes deliver lower rates or protect you if one lender tightens serviceability criteria in future.

For investors based in Officer and Officer South, we regularly see scenarios where someone purchased a property three or four years ago, locked in a fixed rate that seemed reasonable at the time, and is now coming off that rate onto a variable product that's significantly higher than what new clients are accessing. A refinance in that situation is almost always worthwhile, provided the property hasn't declined in value and the investor's income still supports the loan.

Call one of our team or book an appointment at a time that works for you to review your current loan structure and identify whether refinancing makes sense for your portfolio.

Frequently Asked Questions