For the most part, the decision to refinance an investment property is a viable one if you’re looking to get funds for purchasing another property or renovating your current portfolio.
As a property owner, you have different ways to access equity that your property has accumulated. Used properly, this equity can help you to achieve the different goals you have.
But, before making your decision, you may want to take a step back and give proper thought to the whole thing. Is it the best time to refinance your property?
Well, we’re here for you, and we want to help you to determine the right time for refinancing.
Let’s get right into it.
You may be reading this and wondering when exactly you should refinance an investment property in Australia. Luckily, we’re bringing you all of the details now.
Essential Things to Consider
When deliberating over refinancing, consider the term of your loan as this affects any long-term financial obligations. Keep in mind that the type of interest you opt for, variable or fixed interest rate, will impact your obligations, too.
Job security is also an important consideration in determining the right time to refinance an investment property. If it’s possible for you to manage the loan of one wage, then it’s okay. In some cases, refinancing with some lenders might not turn out well for you.
For example, steer away from slow lenders or those who don’t communicate well during the period of refinancing.
Also, it’s important to consider all the risks associated with refinancing before making your decision. Some risks include:
- You will still have to make mortgage payments even if your property drops in value
- You can use your own money to pay the mortgage if your property can’t cover it
- Regular maintenance of the property means more burden on you
- There are costs associated with the refinancing process
Remember, your lender might keep some of the equity as security. So, take ample time to calculate exactly how much equity you will have once the refinancing deal is complete.
When Not to Refinance
There are some situations when refinancing doesn’t make sense and can be a mistake you’re never coming back from.
If you have a good lender, don’t consider refinancing because you’re after lower rates. In most cases, getting lower interest rates means your interests and needs are not being looked after by a lender. This can prove to be costly for you in the long run.
When you’ve had your current mortgage for a long time, refinancing may not be something that you want to do. For example, if you have been making loan payments for almost 20 years, refinancing may reduce your payments, costing you more money and more years. You’ll revert to paying interests rather than building equity.
In some cases, your current loan may have a pre-payment penalty. Bear in mind that calculations are usually made based on those penalties. So, you may want to chomp the numbers and compare that cost to the savings you would make. The penalty usually increases the time you’ll take to break even after refinancing.
When to Do It
If you consider refinancing, finding the right property investment mentor can make a huge difference. You should also have a substantial reason for doing that.
One reason you should refinance an investment property is high-interest rates offer by your current lender when the competition is offering fairly reasonable rates. If you get such an opportunity that allows you to save, don’t hesitate to scoop it.
Do you think you have accumulated enough equity in your current property? If so, refinancing can be a great way to increase your property portfolio. You only need to come up with a deposit and use the accumulated equity to purchase another property.
In some cases, refinancing can be a good thing to fix your repayment. This is great especially when you’re anticipating rates to bottom out. Many people have already managed to fix their rates basing on such expectations.
If you want to consolidate your debts, refinancing can be a great move, too.
Best Time to Refinance
Experts recommend property owners to consider refinancing when the year is almost ending. This is because lenders are usually eager to close as many loans as possible as the year ends.
However, it’s not just the typical year’s end; it’s the fiscal year of a particular lender. So, borrowers need to find out when a lending institution’s fiscal year ends, then make their move.
At this time of the fiscal year, lending officers are usually looking to spruce up their profile for a chance to qualify for bonuses. To them, the more clients they refer, the better for them.
There’s also a certain time of the month that’s great for a property owner to refinance an investment property. This is typically end month. Like most services, lenders have monthly targets, too.
Mortgage officers usually strive to rack up their numbers during the last half of the month. This presents an outstanding opening for you to get that refinance deal on better terms.
[Tweet “When to Refinance An Investment Property”]
Before You Do It
Like with any financial decision, there’s plenty of due diligence that goes into refinancing. You want to understand your goals before making a move. Use a “break-even” calculator to figure out how low the new rate is compared to your current rate.
Your credit history is important as lenders will be looking at it to review your application. Ensure you have a high credit score. Also, get an appraisal of your current property to know it’s worth.
Refinance an Investment Property – The Takeaway
Refinancing is a great way to go if you’re looking for funds to grow your portfolio. Bear in mind that this process might involve several costs such as application fee, title search, loan origination costs, and attorney review fees.
Always prepare in advance as the refinancing can be a challenging process. You want to eliminate any possible risks and prove to lenders that you’re a reliable borrower.
If you’re unsure about what to do, it’s advisable to work with a mortgage broker to guide you through every individual step of the process.
Do you have any question for us? Feel free to get in touch, and we’ll be glad to help.