Refinancing Investment Properties: When and Why to Switch

Your investment property loan might be costing you more than it needs to.

Most investors set up their loan, watch the tenants move in, and forget about it. Meanwhile, lenders release lower rates for new customers while existing borrowers stay put on whatever rate they started with. If you purchased or last refinanced more than two years ago, you're probably paying more interest than someone taking out the same loan amount today. That gap adds up to thousands in extra payments each year.

Why Refinance an Investment Loan

Refinancing an investment loan lets you access lower interest rates, switch loan features, or release equity for another purchase. Unlike your home loan, where you might tolerate a slightly higher rate for convenience, every dollar of interest on an investment property reduces your rental income and affects your tax position. A reduction of even 0.5% on a $600,000 loan saves around $3,000 annually in interest.

Consider an investor who bought a property in Narrabundah five years ago with a 4.8% variable rate. Lenders are now offering variable rates closer to 6.0% to 6.5% depending on your loan amount and deposit position, but her rate had climbed to 7.2% after multiple increases. She hadn't reviewed her loan since settlement. A refinance to a current variable product brought her rate down to 6.4%, saving around $4,800 per year on a $600,000 loan amount. That difference goes straight to cashflow or offset against other expenses.

Accessing Equity to Buy Your Next Property

One of the most practical reasons to refinance is releasing equity in your property to fund another deposit. If your investment property has increased in value since you purchased it, you may be able to access that growth without selling. Lenders typically allow you to borrow up to 80% of the property's current value, sometimes 90% with lender's mortgage insurance.

In a scenario like this: an investor owns a property valued at $800,000 with a remaining loan of $480,000. At 80% lending, she could borrow up to $640,000. That leaves $160,000 in accessible equity, minus costs. She uses $120,000 as a deposit on a second investment property valued at $600,000, keeping the remaining equity as a buffer. The refinance application included a property valuation to confirm the current value, and the lender approved the increased loan amount based on her rental income and serviceability. She now owns two properties instead of one, without needing to save another deposit from scratch.

When Your Fixed Rate Period Ends

If your investment loan is coming off a fixed rate, you'll usually revert to a variable rate set by your current lender. That revert rate is often higher than what new customers receive. Lenders don't automatically move you to their lowest available product. They shift you to a standard variable rate, which can sit 1% or more above competitive offerings.

You have around 60 to 90 days before your fixed rate period ending to compare what's available and lock in a new rate. Some investors switch to another fixed term if they want certainty, while others move to variable to retain flexibility. If you're planning to access equity or make changes to your loan structure, refinancing before the fixed period ends avoids break costs and gives you time to arrange valuations and documentation.

How the Refinance Process Works for Investment Properties

The refinance process for an investment property follows a similar path to refinancing your home, with a few additional considerations. Lenders assess your serviceability based on rental income, not just your personal income. They typically calculate rental income at 80% of the actual rent to account for vacancy periods and maintenance costs.

You'll need recent rental statements or a lease agreement, recent tax returns if you're self-employed, and payslips or financial statements showing your employment income. The lender arranges a property valuation to confirm the current value, which determines how much you can borrow. If you're consolidating other debts into the mortgage or accessing equity, the lender reviews your total borrowing capacity and loan amount against the updated property value.

Processing times vary, but most refinance applications settle within four to six weeks if documentation is provided promptly. Some lenders move faster if the property valuation comes in as expected and your financial position is straightforward.

Switching Between Fixed and Variable Rates

Many investors split their loan between fixed and variable portions to balance certainty and flexibility. If interest rates have moved since you fixed, or your investment strategy has changed, refinancing lets you adjust that split. Switching from fixed to variable gives you access to offset accounts and redraw facilities, which aren't always available on fixed products. Switching from variable to fixed locks in your repayments for a set period, which can help with budgeting and cashflow planning.

If you're holding multiple investment properties, some investors fix one loan and leave another variable. That way, they have certainty on part of their portfolio while retaining the ability to make extra repayments or access equity on the variable portion.

Improving Loan Features and Cashflow

Refinancing can also give you access to features that reduce loan costs or improve cashflow. An offset account linked to your investment loan reduces the interest charged each month based on the balance you hold. If you keep $50,000 in offset against a $600,000 loan, you're only charged interest on $550,000. That saves around $3,000 per year at a 6% interest rate, and the offset balance remains accessible if you need it.

Redraw facilities let you access any extra repayments you've made above the minimum. Some lenders charge fees for redraws or limit how often you can access funds, so comparing loan features during a loan health check ensures you're not paying for features you don't use or missing features that would help.

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, and walk you through the refinance application if it makes sense for your situation.

Frequently Asked Questions