Should You Refinance Your Investment Property Right Now?

If your investment property sits on a rate you locked in two or three years ago, you're probably paying more than current variable rates.

Refinancing an investment property isn't about chasing deals. It's about making sure your loan still works for what you need it to do. Rates change. Your cashflow changes. Your plans for the property change. Your loan should change with them.

When Refinancing an Investment Property Makes Sense

Refinancing makes sense when the numbers stack up after you account for the actual cost of switching. That means looking at your current interest rate, what you'd pay elsewhere, how much you still owe, and what you'd spend to move.

Consider a tutor who bought a rental unit three years ago on a fixed rate that's since expired. They're now sitting on the lender's standard variable rate, which is often higher than what new borrowers get offered. Moving to a lender offering a lower variable interest rate could reduce monthly repayments by several hundred dollars, even after accounting for discharge fees and application costs.

The other scenario is equity. If your property has increased in value since purchase, refinancing can release equity to fund a deposit on a second investment property. In that case, the reason to refinance isn't just the rate, it's access to capital.

Fixed Rate Period Ending: What Happens Next

When your fixed rate period ends, your loan converts to the lender's standard variable rate. That rate is usually higher than the variable rates advertised to new customers, sometimes by 0.50% or more on the loan amount.

Most lenders send a letter about 30 to 60 days before your fixed term expires. If you do nothing, the switch happens automatically. If you wait until after the switch, you're paying the higher rate while you organise your next move. That could be months, depending on how long the refinance process takes.

You don't need to accept the standard variable rate just because your term has ended. You can refinance to another lender or negotiate a lower rate with your current one. Some lenders will offer retention rates if you ask, though these aren't always as low as what's available elsewhere.

Releasing Equity to Buy Your Next Investment

If you've held an investment property for a few years and the market has moved upward, the equity in that property can become a deposit for the next one. Refinancing lets you access that equity without selling.

As an example, a tutor owns a rental townhouse in a growing suburb, purchased for $550,000 with a $440,000 loan. The property is now valued at $650,000, and the remaining loan balance is $410,000. That's $240,000 in equity. Most lenders allow you to borrow up to 80% of the property's value without paying LMI, which means the maximum loan would be $520,000. Subtract the existing loan of $410,000, and the tutor could release $110,000 to use as a deposit on a second property. The refinanced loan increases, but the rental income from the first property continues to service most of the repayments.

Expanding your property portfolio this way means you don't need to save a full deposit from scratch. You're using the value you've already built.

Comparing Refinance Rates: What Actually Matters

Interest rate is one factor, but it's not the only one. Two lenders might offer similar rates but have different policies around offset accounts, redraw facilities, or how they calculate rental income for serviceability.

Offset accounts let you park savings against your loan balance to reduce interest without locking the money away. Redraw lets you pull out extra repayments you've made. Not all lenders offer both, and some charge extra for the features.

Some lenders also assess rental income differently. One might accept 80% of the rent as income for serviceability, another might only accept 75%. If you're planning to buy another investment property soon, that difference affects how much you can borrow next time.

The rate matters, but so does what the loan lets you do after you've refinanced.

The Cost of Switching Lenders

Refinancing costs money upfront. Your current lender will charge a discharge fee, usually between $150 and $400. The new lender might charge an application fee, though many waive this. You'll also need to cover a property valuation, which typically costs $200 to $300 depending on the property type and location.

If you're still in a fixed rate period, breaking the loan early triggers break costs. These can run into thousands of dollars if rates have dropped since you fixed. Lenders calculate break costs based on the difference between your fixed rate and current wholesale rates, multiplied by how much time is left on your fixed term. If rates have risen since you fixed, break costs are usually minimal or zero.

Add up the total cost, then compare it to how much you'd save on interest over the next 12 to 24 months. If the saving outweighs the cost within a reasonable period, refinancing makes financial sense.

Can You Consolidate Other Debts Into Your Mortgage?

Some tutors refinance to roll car loans, personal loans, or credit card debt into their mortgage. This can reduce your overall monthly repayments because mortgage rates are lower than personal lending rates.

The catch is that you're spreading short-term debt over a 25 or 30-year loan term. A $20,000 car loan at 8% over five years costs about $3,300 in interest. Roll that into your mortgage at 6% over 25 years, and you'll pay far more interest overall unless you make extra repayments to clear it sooner.

Consolidating debt works if it improves your cashflow and you have a plan to pay down the extra amount faster than the loan term. If you just make minimum repayments, you'll save monthly but pay more long-term.

How Long the Refinance Process Takes

From application to settlement, refinancing usually takes four to six weeks if your paperwork is in order and the property valuation comes back at or above the required amount.

You'll need recent payslips, tax returns if you're self-employed, rental statements for the investment property, and a copy of your current loan statement. The new lender will order a valuation, assess your income and existing debts, and issue formal approval if everything stacks up.

If the valuation comes in lower than expected, you might not be able to borrow as much as planned. If you're refinancing to release equity, that could mean adjusting your plans or looking at a different lender with a more favourable valuation policy.

Once approved, settlement involves your new lender paying out your old loan and registering the new mortgage. You don't need to do much during this stage, but expect some back-and-forth with your solicitor or conveyancer.

Should You Switch to Fixed or Stay Variable?

Variable rates give you flexibility to make extra repayments without penalty and access features like offset accounts. Fixed rates lock in your repayments, which helps with budgeting but usually means you can't make large extra repayments or redraw without fees.

If you think rates will rise, fixing makes sense. If you value flexibility and want to pay down the loan faster, variable is often the way to go. Some tutors split their loan, fixing part for certainty and leaving part variable for flexibility.

There's no universal answer. It depends on your cashflow, your risk tolerance, and what you think rates will do next. If you're unsure, a loan health check can show you how different structures compare.

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

Frequently Asked Questions