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Property investing for refinancers

March 5, 2024

Maybe you’ve reached the milestone of home ownership and are now enjoying watching your property grow in value. Investing in a second house, apartment or holiday home may be part of your financial strategy. Perhaps if you have a stable income, have put away some extra savings and are motivated to start researching the market to find a property that meets your goals. Not only will you have an additional asset with the potential for capital growth, but you could earn a passive income from rent.

Are you ready to invest in property?

Ultimately, the decision to take on additional debt in the form of an investment property could come down to:

  • your overall income and cash flow
  • how much your total repayments will be with another property in the mix
  • what extra costs are involved like bank fees, stamp duty and legal costs
  • the ongoing costs like council rates, owner corporation fees and insurance
  • whether your current finances give you a safety buffer if things don’t go as planned. 

How does refinancing work for property investing?

Refinancing happens when you:

  • change a loan with your existing lender to take advantage of different terms or conditions
  • or move it to a new lender that could better serve your needs. 

When borrowing to invest, assuming you’re approved, you would end up with one loan for the home you live in (an owner-occupier home loan) and the other for your investment property.

Using equity to refinance

Refinancing to invest in real estate involves understanding and using the equity on your current property. 

Equity builds up over time by making loan payments and improvements which add value. 

Learn more about using equity to buy an investment property.

Total equity

In simple terms, equity is the value of an asset (such as your home) less any money owing on it. 

From a home loan perspective, if your property is worth $750,00 and you still owe $500,000, you could have $250,000 in total equity. 

Usable equity 

Good to know however is that your total equity isn't the magical number that dictates your borrowing power. As a guide, the equity you may be able to access – your “usable” equity – is up to 80 percent of your property's value, minus the remaining balance on your mortgage. You still need to be able to afford repayments on both loans.

Refinancing with your existing lender or a new lender

When you refinance your existing home loan to access equity, you’re usually ending your current loan and taking out a new one in its place. This can affect many things like the amount owed, the loan term, interest rates and repayments.

If you switch lenders at the same time you refinance, that means the new lender will pay out your old loan to discharge your mortgage and place a mortgage or mortgages of their own over your property (or properties). 

When it comes to refinancing to invest in an additional property, you may take it as an opportunity to consider moving to a new lender. It might allow you to get better terms and conditions or to do business in a way that aligns with your values. 

Whatever the reason, there could be some refinancing myths and misconceptions getting in the way. If so, it’s great to know there’s help available for you to assess your individual position so you can decide whether refinancing with a new lender is in your best interests.

Finding a lender that shares your values

Investing in the real estate market is a personal as well as a financial decision and one that you want to get right with a loan that suits your needs and finances. Values also play a role, and perhaps you’ve thought about where your investment dollars are being used or whether your existing bank has similar priorities to you.  

Finding a lender that can get you on the path to investing and that shares your values may be easier than you think.

You can also explore Bank Australia’s range of home loans or learn more about the refinancing process.

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