What refinancing your next investment will really cost you

What refinancing your next investment will really cost you

With the current movement in the Australian property market, buying an investment property has become a popular decision. Investors are accessing and using their existing equity to expand their investment portfolio. Refinancing an existing property is a common option many of my clients consider. However, refinancing can come with hidden costs. Explore your Investment financing options by speaking to Marco Scannone at Stars Broking Services today on 0405 252 808.

Research shows that the average home loan term for $300,000 is 30 years. During the 30-year duration, your financial situation may change. Therefore, the option of refinancing allows you to change your home loan to suit your new circumstances. Refinancing refers to the process of paying out your current loan and replacing it with a new loan with an existing or new lender. This option may result in a shorter loan term, lower interest rate and reduced monthly repayment.

What does refinancing involve?

Refinance options provide a way to access equity that has accumulated in your existing properties. As your property increases in value so does the value of your equity. Therefore, refinancing becomes an important resource which can be used when expanding your property investment portfolio.
Let’s look at an example:

If you own an investment property worth $600,000 and owe approximately $300,000, you get $300,000 in equity. Therefore by refinancing the existing investment property to gain access to the $300,000 equity. With this amount of security, you may be able to buy a new investment property and use the rental income you receive from it to pay for the mortgage.

Whilst many assume refinancing your existing loan is a good option when looking to access funds to purchase another property, there are hidden costs and precautions you should be aware of.

Watch out for the hidden costs

Depending on your circumstances and existing loan conditions there may be hidden costs if you decide to refinance. In some cases refinancing can usually cost you $800 or more in fees.Other hidden costs include:

  • Loan Discharge Fees: This is also referred to as ‘termination’ fee. Fees will be charged when you pay out your mortgage in full in order to get your title deeds back or transferred to the new lender.
  • Government Fees: This includes discharge of mortgage and mortgage registration. The NSW State Government charges a mortgage registration fee when you refinance. This fee is charged twice, once to remove the old lender and one to register the new.
  • Exit Fees: Banks will impose break costs, which are applied when you bail out of a fixed rate before the rate expires. If you are breaking a fixed rate loan then refinancing may cost you up to thousands of dollars in fees. This is when it’s worth considering an incoming lender who offers a cash rebate upon settlement.
  • Borrowing costs: Lenders can charge upfront fees when you refinance. With some lenders, these are negotiable and therefore worth talking to an expert mortgage broker about. Standard fees include: Loan application fee, Valuation fee and Settlement fee
  • Stamp Duty & Fees: If you decide to increase the size of your loan when refinancing, stamp duty fees may be payable.
  • Time: Refinancing is a costly and timely process. Each time an applicant wants to refinance the individual has to go through the same process of providing documentation.

With extra costs, it is important to speak to an expert broker prior to your refinancing to assess your benefits and ensure you are getting good value for money.