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Refinance your home loan to buy an investment property

You can refinance your home loan to fund an investment property, or refinance your existing investment loan to get a better deal.

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Marc Terrano

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Sarah Megginson
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How do you fund an investment property while 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.

Refinancing an existing investment loan

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.

How to refinance your investment loan in 4 steps

  1. Compare home loans. Look for an investment loan with a low interest rate. Make sure it has the features you need.
  2. Crunch the numbers. How much will it cost to switch to the new loan? Consider your old loan's discharge fees and check if the new loan has any upfront fees.
  3. Apply. Submit an application for the new loan. Make sure you have the information your lender needs, such as evidence of your income, spending habits, debts and assets.
  4. Exit the old loan. Once the new loan is approved you just need to discharge the old one.

Refinancing a home loan to fund an investment property

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:

  1. You refinance your home loan and pull out some of your equity.
  2. You use this equity as a deposit on an investment property.
  3. You get an investment loan to cover the rest.
  4. You now have to pay off your newly refinanced home loan, plus the investment loan.
  5. If you rent out the investment property, you can cover much (or all) of the investment mortgage.

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.

Example: Brad wants access to his equity

Handsome but balding man.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.

If Brad built up more equity in both his home and investment property, you can see how Brad could carry this out again to purchase another investment property.

The risks of refinancing to invest in property

Refinancing using your equity so you can borrow more money to buy an investment property can be a risky move. Make sure you know what you're doing and considering getting expert guidance from a mortgage broker.

Here are potential risks to consider and precautions to take when planning out your investment.

  • Increasing debt. Refinancing to buy an investment means increasing your debt substantially. You are making your original loan larger and longer by accessing some of your equity, and you have the investment loan to pay off two. And there are extra purchasing costs associated with buying the investment, such as stamp duty.
  • Untenanted periods. If you can't find a tenant for a few weeks or months, you'll find yourself paying off 2 mortgages without the rental income.
  • Market risk. If there is limited price growth in the area or there is not enough demand for property, then you may not receive enough rental income to cover your repayments. Make sure you carefully research the property market to buy in a location that is likely to provide capital gain over time.
  • Refinancing costs. Switching lenders and refinancing your mortgage can be an expensive process which is why you need to estimate the total refinancing costs involved. Sit down with an accountant and a mortgage broker to carefully consider the costs that you'll incur from exiting your current loan (e.g. discharge and government fees) as well as the costs of setting up a new home loan (e.g. application or establishment fees).

Compare refinancing options for your investment

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Name Product Interest Rate (p.a.) Comp. Rate p.a. Fees Monthly Payment

Nano Variable Home Loans P&IInvestment≥ 20% Deposit

Nano Variable Home Loans
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2.54%
2.54%
  • App: $0
  • Ongoing: $0 p.a.
$597
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Investors can get this no-fee variable rate loan. You will need a 20% deposit. Fast online approval. Available for refinancers and existing buyers purchasing their next property.

loans.com.au Smart Booster Discount Investor Variable Home Loan P&IInvestment≥ 20% Deposit

loans.com.au Smart Booster Discount Investor Variable Home Loan
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2.24%
2.96%
  • App: $0
  • Ongoing: $0 p.a.
$574
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If you have an owner occupier loan with loans.com.au you can also get this very low rate variable mortgage for your investment property. Principal and interest repayments. Add an offset sub-account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.

Athena Variable Home Loan P&IInvestment≥ 40% Deposit

Athena Variable Home Loan
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2.44%
2.44%
  • App: $0
  • Ongoing: $0 p.a.
$590
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Investors with large 40% deposits or equity can get this low variable rate. A competitive option for investors looking to refinance.

Yard Variable Home Loan P&IInvestment≥ 20% Deposit Bundle

Yard Variable Home Loan
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2.15%
2.18%
  • App: $0
  • Ongoing: $0 p.a.
$567
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This rate is available as part of Yard's investor bundle. Eligible borrowers must have an owner-occupier loan and investor loan with Yard.

Nano Variable Home Loans IOInvestment≥ 20% Deposit

Nano Variable Home Loans
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2.84%
2.65%
  • App: $0
  • Ongoing: $0 p.a.
$621
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More Info
This variable investment loan has interest-only repayments. Get fast online approval. Available for refinancers and existing buyers purchasing their next property. Requires a 20% deposit.

homeloans.com.au Low Rate Home Loan with Offset IOInvestment≥ 40% Deposit

homeloans.com.au Low Rate Home Loan with Offset
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2.59%
2.39%
  • App: $0
  • Ongoing: $0 p.a.
$601
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This competitive variable rate loan is for investors who want interest-only repayments. You will need a 40% deposit.

HSBC Home Value Loan P&IInvestment≥ 30% Deposit

HSBC Home Value Loan
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2.47%
2.48%
  • App: $0
  • Ongoing: $0 p.a.
$592
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$3,288 refinance cashback offer
This variable rate loan is available for property investors with 30% deposits. This loan has very few fees. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

Yard Variable Home Loan P&IInvestment≥ 20% Deposit

Yard Variable Home Loan
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2.19%
2.22%
  • App: $0
  • Ongoing: $0 p.a.
$570
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A variable rate loan for investors with an optional offset account ($120 annual fee). 20% deposit required.

homeloans.com.au Low Rate Home Loan with Offset P&IInvestment≥ 20% Deposit

homeloans.com.au Low Rate Home Loan with Offset
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2.39%
2.39%
  • App: $0
  • Ongoing: $0 p.a.
$586
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This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.

Athena Variable Home Loan P&IInvestment≥ 30% Deposit

Athena Variable Home Loan
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2.49%
2.46%
  • App: $0
  • Ongoing: $0 p.a.
$594
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More Info
Athena's refinance offer for investors and owner occupiers.

Athena Variable Home Loan P&IInvestment≥ 20% Deposit

Athena Variable Home Loan
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More Info
2.54%
2.48%
  • App: $0
  • Ongoing: $0 p.a.
$597
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More Info
A competitive investor variable rate that falls as you build equity.

Newcastle Permanent Building Society Real Deal Home Loan P&IInvestment≥ 20% Deposit

Newcastle Permanent Building Society Real Deal Home Loan
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2.57%
2.61%
  • App: $595
  • Ongoing: $0 p.a.
$600
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A competitive variable rate investor loan. 20% deposit required. Get up to $3,000 refinance cashback when your LVR is 90% or lower ($2,000 cashback for loan amounts of $250K+ and above, $3,000 for $500K+). Other conditions apply.

Athena Variable Home Loan IOInvestment≥ 30% Deposit

Athena Variable Home Loan
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More Info
2.74%
2.56%
  • App: $0
  • Ongoing: $0 p.a.
$613
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More Info
Investors with 30% deposits can get this fee-free variable rate loan. This loan has interest-only repayments.

homeloans.com.au Low Rate Home Loan with Offset IOInvestment≥ 20% Deposit

homeloans.com.au Low Rate Home Loan with Offset
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2.69%
2.49%
  • App: $0
  • Ongoing: $0 p.a.
$609
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More Info
A competitive rate with no application or ongoing fee. This loan is not available for construction.
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2 Responses

  1. Default Gravatar
    TyronneFebruary 23, 2015

    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?

    Reply
    • Avatarfinder Customer Care
      ShirleyFebruary 23, 2015Staff

      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

      Reply
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