You can refinance your current investment loan like any other home loan refinance. There are plenty of benefits to doing this.
You could save money by switching to a lower interest rate. Or you could get a loan that better suits your current investment strategy, such as a loan with an offset account or interest-only repayments.
You could also use the equity you have in your existing investment property to borrow more money for your next property purchase.
You can refinance your existing loan using the equity you've built in your property to borrow a higher amount.
Equity is the value that you own in your home. It's the property value, minus the deposit you've paid and the amount of loan you've repaid.
If you bought your home for $800,000 and you've still got $500,000 left to pay on the loan, you've got $300,000 in equity.
When you refinance you can apply to borrow up to 80% of your property value again. With the numbers above that means increasing your loan by up to $240,000 for use as a deposit.
"There are very few 'free rides' when it comes to money, but investing with equity is as close as you can get. This strategy allows you to use the bank's money to invest, accelerating your progress further and faster than what you can do with just your savings alone. Any time you borrow, it's crucial you manage your risk, and this is why effectively planning is so important - but when this is done the right way you WILL get ahead faster. "
Let's say you want to fund an investment property while still paying off your own home. If you have some equity in your home, you may be able to refinance your own home loan to fund the investment purchase.
Here's a quick explanation for how it works:
It's obviously a slightly complicated strategy. It involves getting a separate investment loan while also refinancing the loan on your own home and making that debt bigger.
The reason it can work is because the investment property will generate rental income and over time, hopefully, capital growth.
Here's a more detailed hypothetical.
Brad owns a home worth $500,000 and owes $200,000 on the mortgage. This means he has $300,000 in equity and a loan-to-value ratio (LVR) of 40%. After doing some research and speaking with his mortgage broker, Brad decides to buy an investment property. He refinances his existing mortgage with a new lender to get access the $200,000 of equity, which brings his LVR up to 80%.
Brad could've refinanced up to as much as a 90% LVR, giving him more to invest, but he decides not to as this would mean he'd have to pay a lender's mortgage insurance (LMI) premium.
With his $200,000, Brad buys an investment property and uses a combination of rental income and his salary to gradually pay it off.
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Unless you have another source of income, it's very difficult to successfully refinance while unemployed.
Refinancing an SMSF home loan is the same as refinancing any other home loan, although it requires some extra thought and consideration.
Refinancing to an interest-only loan can give you lower mortgage repayments and tax benefits for some investors.
Knowing just how much equity you have in your home before you start looking to refinance a home loan is crucial. If you don't have enough equity you might have to pay for LMI again or get stuck with a higher rate.
Our comprehensive guide to refinancing your home loan shows you how to refinance a home loan and start saving today.
When you have bad credit it can be harder when refinancing. Home loans are available even with bad credit though – find out how you can refinance today.
Interest rates are low, giving you the chance to save thousands. See how much less you could pay for your home loan by refinancing today.
Keen to switch home loan to a better deal? Refinancing could save you thousands, but make sure you know all the fees and charges before you switch.
I was wondering if you can transfer your equity from an investment property to your place of residence. E.g. I have a home valued at $265,000 and owe $130,000 then i have an investment rental property valued at $250,000 and a loan of $160,000
can i refinance the rental so that i owe $200,000 and put the $40,000 onto my home loan so i only owe $90,000 on my house maximising the tax deductibility of my rental whilst minimising my current house loan?
Hi Tyronne,
Thanks for your question.
Accessing your equity to put the funds into your main residence is definitely possible. If you find that none of these loans are suitable for your situation, there is always the option of speaking to a home loan broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that is more inclined to review your application.
Regarding tax-deductibility, you will need to confirm this aspect with your trusted accountant.
Cheers,
Shirley