With interest rates biting everyone hard, there’s plenty of property investors looking for a better rate on their loan.
The landscape for refinancing an investment property loan, however, is slightly different to that for owner-occupiers.
Before hunting down a better deal, there’s five tips to be aware of.
- Initial costs
A better interest rate will obviously save you money, but initially it will actually cost you in the form of application fees, discharge fees, settlement fees, mortgage registration fees and exit fees.
You should be able to recover all these costs and get back in front within the first few months or years of your refinanced loan given the lower rates you have achieved.
- Tax perks
When you refinance an investment loan you may be eligible for a tax deduction for the borrowing costs and exit fees, making it a wise policy to speak to your tax agent before refinancing.
- Loan-to-value ratio
Property investment loans can have stricter loan-to-value requirements that need an LVR of at least 75 per cent or better.
Remember, the higher your LVR, the higher the interest rate you are likely to be paying on your investment loan.
- Credit rating
Another big factor that dictates what sort of interest rate you can achieve on your property investment loan is your credit rating.
The higher your credit rating is, the less risk a lender is taking by lending to you and the lower the interest rate they will be willing to offer you.
With the tougher lending restrictions that come with investment loans, a good credit rating can be especially helpful.
Bear in mind that every time you apply to refinance it appears on your credit report and too many refinance applications can turn lenders off.
- Proving your income
The scrutiny around your income and proving what you earn is held to a higher standard for investment loans compared to owner-occupiers.
You’ll need to submit more detailed paperwork to prove your income such as tax returns, pay slips and rental receipts.