Should You Refinance Your Investment Property? A Proactive Guide

The loyalty tax costs Australian borrowers an average of $1,070 per year. That’s the premium you pay for staying with your current lender while they offer better rates to new customers walking in the door.

Roughly one in four borrowers never tries to refinance. They assume it’s too hard, too much paperwork, or not worth the effort.

For owner-occupiers, that inaction costs you. For property investors, it does something worse: it compounds. You’re overpaying on the existing loan and reducing your borrowing capacity for the next purchase, because the higher rate increases your assessed repayments in serviceability calculations. One bad rate can quietly hold back your entire portfolio.

Most brokers disappear after settlement. Your rate drifts up. You don’t notice because nobody tells you.

This guide covers when refinancing actually makes sense, what it costs, the tax mechanics most articles skip, and what a proactive approach looks like instead of an annual review.

When refinancing your investment property makes sense

Not every rate move warrants a switch. But several triggers should have you looking seriously at your options.

Rate differential. A 0.25% saving is the general threshold where refinancing starts to make financial sense, though it depends on your loan size and exit costs. On a $600,000 investment loan, 0.25% saves roughly $1,500 per year. On a $400,000 loan, the maths is different.

Fixed rate expiry. This is the single biggest refinancing trigger. When your fixed rate rolls to variable, you often land on a rate well above what’s competitive. Lenders count on borrowers not noticing the rollover.

Property value increase. If your property has grown in value, your LVR has improved, which unlocks better rates. An investment property that’s gone from 90% LVR to 80% might qualify for a rate 0.2-0.4% lower, which adds up fast.

Accessing equity. Refinancing to release equity for the next purchase is the investor-specific trigger that generic guides miss entirely. If you’ve built equity and need a deposit for the next investment property, refinancing can unlock it.

Switching repayment type. Moving from principal-and-interest to interest-only (or vice versa) as your strategy evolves. Some lenders won’t allow an IO switch on your existing loan, so a refinance becomes the path.

Changed income. An increase in income can open up better products and lender tiers that weren’t available when you first borrowed.

What these triggers look like in practice

When refinancing doesn’t make sense

Not every refinance is a good refinance. Here’s how to tell the difference.

Small rate differential on a small loan. Saving 0.15% on a $300,000 loan is $450 per year. Once you factor in switching costs and your time, it may not stack up. The saving has to justify the effort.

Early exit from a fixed rate. Break costs on a fixed loan can run into thousands (sometimes tens of thousands) depending on the rate differential and remaining term. Get a break cost quote from your lender before making any decisions, because the penalty can wipe out years of rate savings.

Your financial situation has changed for the worse. If your income has dropped or your debts have increased since you took out the loan, you might not qualify at current serviceability standards. The assessment buffer (currently 3% above the product rate) means many borrowers can’t refinance into loans they could comfortably repay. That’s a policy issue, not a reflection of your actual capacity, but it’s the reality.

You’re about to apply for another loan. Refinancing triggers a credit enquiry and resets your loan history with the new lender. If you’re about to apply for finance on your next property, the timing of a refinance matters. Talk to your broker about sequencing.

The real cost of refinancing (what nobody tells you)

The rate saving gets all the attention. But the switching costs determine whether the refinance actually pays off.

Total typical cost: $500-$2,000 for a straightforward refinance where your LVR stays at or below 80%.

The wildcard is LMI. If your property value has dropped or you’re borrowing more, your LVR might push above 80% and trigger Lenders Mortgage Insurance on the new loan. That changes the equation entirely.

The break-even calculation

Divide your total switching cost by the annual rate saving, and that’s how long until the refinance pays for itself.

Example: $1,200 in switching costs / $1,800 annual saving = 8 months to break even. Everything after that is straight savings.

If your break-even is under 12 months and you plan to hold the loan for several years, the refinance almost certainly makes sense.

Tax implications for investment property refinances

This is the section most refinancing guides skip, and it’s the one investors actually need. The ATO has clear rules, but they’re not always well understood.

Interest stays deductible. Refinancing your investment loan doesn’t change the deductibility of the interest, as long as the loan purpose remains investment. Swap lenders, change rates, adjust the term. The interest is still a tax deduction.

Cash-out changes the equation. If you refinance and increase the loan (equity release), only the portion used for investment purposes is deductible.

Draw $80,000 in equity and use $50,000 for the next investment deposit and $30,000 for a holiday? Only the $50,000 portion generates deductible interest. The loan purpose follows the money, not the property it’s secured against.

This is why loan structure matters. Separate splits for separate purposes keeps your deductions clean and your accountant happy.

Discharge and establishment fees. These borrowing costs are generally deductible, but not immediately. They’re spread over the life of the new loan, or five years, whichever is shorter. A $700 discharge fee on a new 30-year loan is a $140 deduction each year for five years.

LMI on refinance. If you pay LMI as part of the refinance, it’s deductible over the loan term or five years, whichever is shorter. Same treatment as LMI on the original purchase.

Check with your accountant on the specifics of your situation. But the baseline holds: refinancing your investment loan doesn’t break your tax position, as long as you don’t mix loan purposes.

How refinancing affects your borrowing capacity

This is the section that turns refinancing from a rate play into an investment strategy.

A lower rate on your existing loans directly improves your borrowing capacity for the next purchase. Lenders assess your ability to service all debts (existing and new) at a buffer rate above the actual rate. A lower actual rate on your current loans means lower assessed repayments, which frees up room for additional borrowing.

Worked example: You hold a $500,000 investment loan at 6.39% and refinance to 6.09%, a 0.30% saving. That reduces your annual interest cost by $1,500.

But the capacity impact is much larger: under most lenders’ serviceability models, that rate reduction frees up approximately $30,000-$50,000 in additional borrowing capacity. That’s not just savings on this loan. It’s what makes the next loan possible.

Refinancing to interest-only also improves assessed cashflow in some serviceability calculations, because the lender calculates the repayment burden on IO rather than P&I during the interest-only period. This varies by lender and by how their assessment model works.

For investors building a portfolio, refinancing isn’t about saving a few hundred dollars a month on one loan. It’s about making the next purchase possible sooner. That’s the portfolio-level thinking that choosing a broker over a single bank unlocks: someone comparing your whole position across 30+ lenders, not just the one you’re already with.

The proactive approach vs the annual review

Most financial advice says “review your loan annually.” That’s better than doing nothing, but it’s still reactive.

Here’s the problem. Rates change weekly. Lender policies shift. New products appear. If you check in once a year (or once every couple of years, which is what most people actually do) you’re leaving money on the table in the gaps between reviews.

Say your lender drops a competitor-matching rate in March. You don’t notice until your “annual review” in October. That’s seven months of paying more than you needed to. On a $600,000 loan with a 0.25% differential, that’s roughly $875 gone.

The alternative is continuous monitoring. Your loans, measured against the market in real time. When a meaningful saving appears, you hear about it immediately rather than six months later when you remember to check.

This is the difference between reactive and proactive management. Reactive means you chase the problem after it’s cost you money. Proactive means the problem gets flagged before you feel it.

Approov monitors your loans against the market on an ongoing basis. When a better option exists (a rate drop, a product change, an equity opportunity) you know about it before you have to ask.

Not a quarterly email. Not an annual review reminder. Your loans, proactively monitored, so the work of staying competitive doesn’t fall on you.

That’s what “always working” actually means. Not a tagline. A process that keeps running after settlement.

How to refinance your investment property (the process)

If you’ve decided refinancing makes sense, here’s how it works. Six steps, roughly 4-6 weeks from application to settlement.

Step 1: Assess the current loan. Document your existing rate, features (offset, redraw), remaining term, and any exit costs. If you’re on a fixed rate, get the break cost in writing from your lender before going further.

Step 2: Get a property valuation or estimate. Your current LVR determines what products and rates you can access. A broker can often get a desktop valuation done quickly to establish where you stand. If the property has grown, you may qualify for a better LVR tier and a better rate.

Step 3: Compare options across lenders. This is where a broker adds real value. A bank can offer you their rate. A broker compares your situation across 30+ lenders and finds the right fit for your specific position: rate, features, cashback offers, and serviceability.

Step 4: Apply with the new lender. Your broker handles the application, documentation, and submission. For a refinance with no change to the loan amount, documentation is typically lighter than a new purchase.

Step 5: Settlement and discharge. The new lender pays out the old lender. The mortgage gets registered against the new loan. Your broker and conveyancer manage this process. Usually takes 4-6 weeks from application to completion.

Step 6: Ongoing monitoring. This is the step most people skip, and it’s why the cycle repeats. Don’t set and forget. Whether you use Approov’s proactive monitoring or set your own reminders, keep watching the market. A competitive refinance rate today is just the starting point.

Frequently asked questions

When should you refinance an investment property?

When you can save 0.25% or more on your rate, when your fixed rate is about to expire, when your property value has improved your LVR, when you need equity for the next purchase, or when switching repayment types. On a $600,000 loan, 0.25% saves roughly $1,500 per year. If your break-even on switching costs is under 12 months, it’s worth moving.

Is it worth refinancing an investment property?

In most cases, yes, if the rate saving outweighs the switching costs. A typical refinance costs $500-$2,000. On a $600,000 loan, even 0.25% in rate savings generates $1,500 per year. But the bigger value for investors is the borrowing capacity uplift: a lower rate on existing loans frees up capacity for the next purchase.

How much does it cost to refinance an investment property?

Expect $500-$2,000 for a straightforward refinance. That covers discharge fees ($150-$400), government fees (varies by state), and settlement costs ($300-$700). Many new lenders waive application and valuation fees for refinances. The exception is LMI: if your LVR has changed, a new LMI premium could add thousands.

Can you refinance an investment property to interest only?

Yes. Switching from P&I to interest-only is a common reason investors refinance. IO periods typically run 1-5 years for investment loans. This drops your monthly repayments and improves cashflow, but you won’t reduce the loan balance during the IO term. Some lenders allow IO switches on existing loans, others require a refinance to make the change.

Does refinancing affect your tax deductions?

Not if the loan purpose stays the same. Interest remains deductible on an investment loan regardless of which lender holds it. If you increase the loan (cash out), only the portion used for investment purposes stays deductible. Borrowing costs like discharge fees and LMI are deductible over the life of the loan or five years, whichever is shorter.

How often should you review your investment property loan?

At least annually, but that’s the minimum. Rates move weekly, so an annual check misses opportunities in between. A better model is continuous monitoring: your loan measured against the current market, with alerts when a meaningful saving appears. At absolute minimum, review when your fixed rate expires, when your income or property value changes, or when you’re planning the next purchase.

What is the loyalty tax on mortgages?

The rate gap between what existing borrowers pay and what new customers get from the same lender. Research puts the average cost at $1,070 per year for Australian borrowers. For investors, it hits twice: higher repayments on the current loan and reduced borrowing capacity for the next one.

Next steps

If you haven’t reviewed your investment property loan in the last 12 months, you’re probably paying more than you need to. And if you’re planning to grow your portfolio, that excess cost is actively working against your next purchase.

The fix isn’t complicated. It starts with knowing where you stand: your current rate versus the market, your LVR, your capacity for the next property.

Want to know if you’re overpaying? Get a no-obligation rate check from Approov. We’ll compare your current investment loan against the market and show you exactly what you could save, and what that saving means for your borrowing capacity on the next purchase.

Want a broker that doesn’t disappear after settlement? See how Approov proactively manages your loans. Your loans monitored. Opportunities flagged. Rate drift caught before it costs you.