How to Refinance Home Loan to Buy Investment Property

To refinance your home loan to buy an investment property, start by assessing your home equity—you’ll need at least 20% equity for most lenders to approve a cash-out refinance. This allows you to borrow against your home’s value to fund the investment property purchase. Refinancing can lower your interest rate and combine loans, but it also increases your debt and monthly repayments, which may affect your future borrowing capacity. It’s advisable to consult a mortgage broker to help guide you through the refinancing process and find the best deal for your investment strategy.

Refinancing your home loan to buy an investment property is a common strategy for Australian homeowners looking to grow their wealth through real estate. By accessing the equity built up in your home, you can potentially pay the deposit for an investment property without needing to save up for years. This article will guide you through the process, and weigh up whether refinancing for this purpose is a good idea, how it affects your mortgage repayments, and the risks involved.

Can You Refinance a Home Loan to Buy an Investment Property?

Yes, it is possible to refinance your home loan to purchase an investment property through a process called cash-out refinancing. This method allows you to tap into the equity you’ve accumulated in your home, essentially borrowing more than your current loan balance to fund the new property purchase. Most lenders will allow this if you have sufficient equity in your property (usually at least 20%) and if your financial situation is stable. Banks will also assess your credit score, income, and current debt levels to ensure that you can manage the increased loan amount.

Equity refers to the portion of your property that you truly own, calculated by subtracting the outstanding mortgage balance from the property’s current market value. For example, if your home is worth $1,000,000 and your mortgage balance is $400,000, you have $600,000 in equity. As you pay down your mortgage and as the value of your home appreciates over time, your home equity grows.

During the refinancing process, lenders will take into account the value of your primary residence and the potential investment property, especially considering whether the investment property can generate enough rental income to help with mortgage repayments.

Should I Refinance My Home Loan to Buy an Investment Property?

Refinancing your home loan to buy an investment property can be a good idea for several reasons. One of the main benefits is the ability to access the equity you’ve built in your current home. As property values rise and mortgage balances decrease, refinancing allows you to tap into this equity without needing separate savings for a deposit. This can be a cost-effective way to fund a new property purchase, helping you leverage the increased value of your home to secure another asset.

Additionally, building wealth through property is a strategy many investors use, particularly in Australia, where real estate historically appreciates over time. By purchasing an investment property, you stand to benefit from capital growth as property values increase. Furthermore, the rental income from the investment property can help cover mortgage repayments, providing an additional source of cash flow. This combination of equity access, property appreciation, and rental income makes refinancing a compelling option for those looking to grow their wealth through property investment. However, it’s essential to weigh these benefits against the increased debt and potential risks involved.

How Will it Affect My Mortgage Repayments?

When you refinance to buy an investment property, your monthly mortgage repayments will increase due to the higher loan amount. You could extend the loan term to keep repayments lower, although this means you end up paying more interest in the long run. It’s important to evaluate how the additional debt will impact your cash flow and whether your rental income will cover the increased repayments. Working with a mortgage broker or using online mortgage calculators can help you determine the impact of refinancing on your monthly budget.

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If you need assistance or have some questions about refinancing your home to buy an investment property, fill out the form below and an expert will call you back.

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What Are the Downsides of Refinancing to Buy an Investment Property?

While refinancing for an investment property can offer significant benefits, there are also some downsides to consider. First, increasing your home loan through refinancing will reduce the equity in your primary residence, which could limit your future borrowing capacity. If the property market takes a downturn, you could find yourself with less equity or even negative equity, where the loan exceeds the value of your property.

Additionally, refinancing to buy an investment property means taking on more debt, which inherently increases your financial risk. If your investment property doesn’t perform as expected—whether due to vacancies, lower-than-expected rent, or a decline in property values—you may struggle to meet the higher repayments, risking foreclosure. Finally, refinancing involves upfront costs, such as valuation fees and loan setup fees, which could make the process more expensive than initially anticipated.

How to Start the Refinancing Process

To refinance your home loan to buy an investment property, the first step is to speak to an experienced refinancing mortgage broker like Eden Emerald Mortgages. They can help you work out your equity, maximum borrowing capacity, and compare and negotiate the lowest interest rates from 40+ lenders to find the best deal. They will also tell you which financial documents you need to provide, such as proof of income and current loan details, to ensure a smooth application process.

Whether you are ready to refinance now, or have some questions about the process, you can ask the experts at EE Mortgages. Leave a message below and one of the refinancing specialists will call you back.

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Conclusion

Refinancing your home loan to buy an investment property can be a powerful tool for building wealth, but it’s important to consider the long-term financial impact. While it’s possible to leverage home equity to pay the deposit, the increased debt and potential risks must be weighed carefully. Consulting a mortgage broker or financial advisor will help you navigate the refinancing process and ensure you make an informed decision.

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