You don’t have to stick to the same lender for your home or investment properties. Different lenders have different policies and each assess clients with different metrics.
Ensure that you have determined your mid to long term financial goals. Then figure out whether you are placed well to enable these goals, it is worth looking into the flexibility & opportunity to improve your lending arrangements and structures.
5 Reasons to consider when thinking about a re-finance are:
- Re-finance to re-structure current lending structures
If your goal is to start building or expand your property portfolio in the mid to long term, cheapest isn’t always the best. You may want to re-finance your properties if:
- You have properties Cross Collateralised (where more than one property is tied together as a security)
- You are with a lender with lenient borrowing calculators & policies, when in fact re-financing to a more conservative lender may mean you utilise and exhaust your borrowing power before going to the more lenient lender at a later stage in your property acquisitions
- Re-finance to access more suitable loan features
- Consider how you can turn non-tax deductible owner occupier debt into tax deductible debt. Some lenders allow for this facility. For instance, if your home loan is $700k, and you save up $100k over a period of time, you can tip the $100k into the home loan and ‘re-borrow’ the $100k as a separate tax deductible loan split. This 100k can be used for investment purposes.
- Are you paying Principal & Interest (P&I) or Interest Only (IO) repayments on your home? Is this your ‘forever’ home? If not, is it worth considering, changing from P&I to IO so you can park the funds you would have otherwise paid as principal in your offset account. Holding back these funds has 2 benefits:
- Given you intend for the property to become an investment property, you maintain the tax deductibility of the loan as you aren’t paying it down and therefore when the funds are pulled out of the offset the repayments are calculated on the entire amount
- You will maintain control of your funds which are parked in the offset. These funds can be used for your non-tax deductible purchases such as a home purchase or a holiday in the future
- Are you paying Principal & Interest (P&I) or Interest Only (IO) repayments on your investment property? If you are paying P&I for an investment property you are eroding the tax deductibility of the loan. For instance, you owe $300k for an investment property, paying down $20k of the principal means, only $280k will be tax deductible. Interest Only means, you maintain the tax deductibility for the entire $300k borrowing
- Re-finance to access EQUITY for Property Investment or Build / Renovations
Your existing lender may not have a suitable cash out policy to allow for cash outs for renovation or further personal investments; they may even have a tighter lending criteria than when you first went to them. Hence you may want to re-finance by choosing a suitable lender with relevant cash out policies for further investment or to conduct renovations.
- Re-finance to get a better deal
With the volatile lending markets, there are ever changing and the interest rate space between lenders is competitive. Whilst rate should never be the sole focus of borrowings, you may be able to save up with another suitable lender
- Re-finance for Debt Consolidation
If you have high interest borrowings on a credit card or a personal loan, re-financing to a lower rate with the home mortgage may mean paying less interest than you would otherwise.
If you are looking to re-structure finance or build a portfolio, give the Property Twins a call on 1300 97 60 60 or email us at [email protected]
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Note: Please ensure you always seek specific specific credit, tax, financial, legal or investment advice. Property Twins' Blogs are not a substitute for personal and specific, taxation, financial, legal or investment advice
