Understanding the Basics of Investment Loan Refinancing

Refinancing an investment loan only makes sense if the savings beat the costs. Work that out first, and the rest is detail.

Plasterers carry plenty of risk already. Income swings with the building cycle, and a rental loan that costs more than it should makes the swings worse. This article covers when switching an investment loan is worth it, what it costs, and how tax and borrowing more fit in. Our Finance for Tradies page explains how we work with trades across many lenders.

When Should You Refinance an Investment Property Loan?

Refinance when a different loan would cost you less overall, or when it suits your goals better, even if the saving is small. The test is the total cost of switching against what you save, not the headline rate.

Common triggers are a fixed rate period ending, a rate that has drifted above what lenders offer new customers, or a loan that no longer has the features you want. If your fixed term is close to finishing, our fixed rate expiry page explains your options. If your main goal is a lower rate, see getting a lower interest rate.

A broker has a legal duty to put your interests first. ASIC guidance says switching costs can outweigh the savings, and in that case a new loan may not be the right recommendation. A good broker will tell you to stay put when that is the honest answer.

What Does It Cost to Refinance an Investment Loan?

Costs can include a break fee on a fixed loan, a discharge fee on your old loan, an application fee on the new one, and lenders mortgage insurance if your equity is under 20 per cent. Amounts vary by lender, so ask for the figures in writing.

A break fee only applies if you leave a fixed rate loan before the term ends. It does not apply to variable loans. Lenders cannot charge an exit fee for ending a loan taken out on or after 1 July 2011 where it is secured over residential property, but break fees and discharge fees are not covered by that ban.

The trade-off is plain. A lower rate does nothing for you if the fees eat the saving before you have held the new loan long enough to recoup them. Use a repayment calculator to check the break-even point before you commit.

Refinancing an Investment Loan: A Worked Example

Take a plasterer with an investment loan of $500,000 on a 30-year term. At the illustrative rate of 6.75% p.a., the monthly principal and interest repayment is about $3,243. Suppose a different lender offers a rate 0.5 percentage points lower, at 6.25% p.a. on the same balance and term. The repayment drops to about $3,079.

That is a saving of about $164 a month, or around $1,970 a year. Say the switch costs $1,500 in discharge and application fees combined. The costs are recovered in under a year. Without those fees being known, the numbers would mean nothing, which is why we ask for them first.

The outcome: the plasterer keeps the same balance and term, improves cashflow, and the rental loan costs less each month. These rates are illustrative only and not current offers. The saving shrinks quickly if the lower rate comes with a higher fee, or if the new loan resets to a longer term. A longer term lowers repayments but means paying more interest overall, and ASIC says you should be told that.

Can You Use Equity to Buy the Next Property?

Yes, in many cases you can borrow against the equity in your current property to fund a deposit on the next one. Whether a lender agrees depends on the property valuation, your income and your existing debts.

Borrowing more is not a like-for-like refinance. Lenders reassess you from scratch, and most banks test your ability to repay at a rate 3 percentage points above the loan rate. Plasterers on variable or self-employed income should expect that scrutiny of tax returns and business earnings. Our borrowing capacity page shows what affects the number, and equity release loans covers how it works. If you are planning to grow, see expanding your property portfolio.

The risk is higher debt. More borrowed means bigger repayments, and if rents fall or work slows, you carry the gap.

Tax matters too. From the 2027-28 income year, rental losses on an established property bought after 7:30pm AEST on 12 May 2026 may not be deductible against your wages or business income. They can generally only be deducted against residential property income. Losses on eligible new builds are treated differently. Speak to an accountant before buying.

How Does Refinancing Affect Your Tax Deductions?

The ATO looks at what you used the borrowed money for, not what property secures the loan. Interest on money used for the rental property is generally deductible, and interest on money used for private purposes is not.

So if you refinance and pull out extra cash for a ute or a holiday, that part of the loan is private. The interest must be split between rental and private use, and the split stays for the life of the loan. You cannot fix it by repaying only the private part. Keep clear records of any refinance and what each amount was used for.

To keep things clean, many investors keep rental borrowing in its own loan rather than mixing it with private debt. The trade-off is that separate loans can mean more paperwork and sometimes extra fees.

A fee to refinance, such as broker fees and loan establishment costs, may also be deductible over time. Rules on negative gearing have also changed for some properties from the 2027-28 income year. Tax outcomes depend on your situation, so speak to your accountant before you act.

What Happens to Offset and Redraw When You Switch?

Offset and redraw features do not move with your old loan. How any redraw balance is treated depends on your lender and loan contract, so ask your current lender how the payout figure and any redraw will be handled, and plan where that cash goes first.

If you use an offset account to save interest, check that the new loan offers one, and whether it has a package fee. Redraw used for private spending can also change how much interest you can claim, so talk to your accountant before you dip into it.

What Does the Refinance Process Involve?

The process is a loan comparison, an application, a valuation, approval, and then settlement where the new lender pays out the old one. The lender will check your payment history and income, and usually the property value.

Have your latest loan statements, rental income details and recent tax returns ready, as missing documents can slow an application. A good starting point is a loan health check, which shows whether your current loan is still doing its job. If you are also weighing up your own home loan, see home loan refinancing for tradies and our home loans for plasterers page. You can also read more on investment loan refinancing for tradies.

Call one of our team or book an appointment at a time that works for you. We will run the numbers on your investment loan, tell you straight whether switching pays, and handle the application if it does.

Frequently Asked Questions