Home > News & Insights > Thinking of topping up your home loan? Why property investors are jumping the refinancing queue
Oct 1, 2021 |ALISON CHEUNG
Refinancing to increase or top up your existing home loan may feel like the only viable way to access finance for property investors. However just because you can refinance, it doesn't always mean you should.
It's a common approach that's pushed by lenders, and that’s because they profit when you top up your mortgage. You are effectively taking out a new loan and borrowing more money.
It depends on what your ultimate goal is with refinancing. If you’re refinancing to benefit from a lower interest rate and save money in the long run, you could be better off making the switch. But if you’re refinancing purely to access finance, in many cases there are better ways to do this than increasing your home loan.
If you have your eyes on a new investment opportunity or you’re in the middle of renovation plans, the last thing you want to do is go through arduous and time-consuming serviceability and credit assessments.
Unfortunately, this is exactly what your bank needs to do before they can give your refinancing application the green light. You have to go through the same paperwork process you did when you first applied for your home loan.
Before you even apply to refinance, you’ll need to sit down and comb through all the details contributing to your financial position, including:
• Your equity – Do you have enough equity in your property to refinance? Or have you borrowed ‘too much’ against your property? If your loan-to-value ratio (LVR) is more than 80%, you may need to pay lenders mortgage insurance (LMI) when you refinance.
• Your income – Has this changed since you applied for your first home loan? If you’ve switched jobs or your rental income has changed, this could directly affect your borrowing capacity.
• Your debts – Have you taken out new loans? Lenders will look at how your existing debts could impact your ability to pay off an increased home loan.
• Your expenses – Are you spending more money? Not only will your discretionary spending, like UberEats, be scrutinised, your lifestyle changes will also come under the spotlight. For example, if you’ve had a child since your first home loan, your living expenses will likely have risen.
• Your credit score – How positive does your credit reputation look to your lender? Your mortgage repayment record in particular will need to be in tip-top shape. If your refinancing application is declined, your credit rating will be negatively affected.
Traditionally, lenders place property investors at the back of the queue when processing new loans or refinances. Our clients and broker partners are reporting that they’re experiencing wait times of up to 2 months to be approved, and another month to receive the funds. A 3-month wait time could be a deal-breaker for many property investors who are coordinating tradespeople for renovation projects, or for those who have locked in a property to purchase.
If you know you’re going to save money in the long term by refinancing to a lower interest rate and lowering your mortgage repayments, the pain may be worth it.
But if you’re looking to access finance for other investments or personal projects, the frustration of paperwork and waiting that comes with refinancing just doesn’t check out.
Property investors struggle to secure finance because banks provide a poor experience for property investors. Unlike the banks, Futurerent provides a fast and frictionless experience designed for property investors.
By unlocking your rent upfront interest-free, we can help you access loan-free funding without refinancing.
Futurerent is different from the banks, so you can forget about getting a property valuation, providing bank statements or proof of income. That’s because we get repaid from part of your ongoing rent, so your rental income is the only income we care about.
We also don’t apply restrictions on how much you’ve borrowed against your property.
Instead of waiting anxiously for months, you can expect to be onboarded in minutes and receive your funds within 2 business days.
We work closely with your property manager to understand your lease and organise repayments, so you don’t have to lift a finger.
Ready to make your next move? See how much rent you could unlock upfront by using our simple calculator.
InvestingTips & Advice
Alison has written about property since 2015. Her work has been published by NewsCorp, Domain and Business Insider. Alison is motivated to help Australians make better property investment decisions.
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