Refinance Investment Property Loan: Should You Switch in 2026?

Refinance Investment Property Loan: Should You Switch in 2026?

When to Consider Refinancing Your Home Loan

Refinancing your investment property loan means replacing your current home loan with a new loan — either with the same lender or a different one. For property investors managing one or more rental properties, refinancing can unlock significant cost savings, improve cash flow, and free up equity for your next investment property purchase.

It is not something to do on a whim, but in the right circumstances, refinancing your home loan can save you tens of thousands of dollars over the life of the investment loan. Use our free refinance calculator to model whether switching makes financial sense for your financial situation.

Interest rates have dropped

If market interest rates have fallen since you took out your home loan, you could be paying significantly more interest than necessary. Even a 0.50% interest rate reduction on a $500,000 investment loan saves around $2,500 per year in interest. Over the remaining loan term, that adds up fast. When the Reserve Bank cuts the cash rate, lenders typically pass on some or all of the reduction — but not always to existing customers. Refinancing to a new loan with a lower interest rate ensures you are not paying more than you need to.

Your fixed rate period is expiring

When a fixed rate period expires, most lenders roll you onto their standard variable rate — which is often a higher interest rate than what you could negotiate with a new lender. The period immediately after a fixed rate home loan ends is one of the best times to shop around. Many property investors on fixed rate home loans forget to review their options when the term expires and end up paying hundreds more per month in home loan repayments than necessary.

Your home's equity has grown

If your investment property has increased in value, your LVR (loan to value ratio) has improved. A lower LVR gives you access to better interest rates and loan products. If you were originally paying lenders mortgage insurance or a risk premium at 90% LVR, refinancing at 70-75% LVR could unlock significantly better pricing. How much equity you have determines which investment loan products and interest rates are available to you.

You need to access additional funds

Refinancing can release equity for your next property purchase. By moving to a new lender at 80% LVR on a higher property value, you can draw out the difference as funds for a deposit on another investment property. This is one of the most common reasons property investors refinance — to access their home's equity and grow their investment portfolio.

Your lender's service or products are poor

Sometimes it is not about the interest rate. Slow loan approval processes, poor communication, or inflexible loan features (no offset account, limited extra repayment options) are all valid reasons to move. For investment property loans, an offset account is particularly valuable — see our guide on offset accounts.

Refinancing Costs to Factor In

Refinancing your home loan is not free. Before jumping ship, a property investor should add up the total refinancing costs and determine whether the interest rate savings justify the switch.

Typical upfront costs when refinancing an investment loan

Here are the costs to expect when switching your home loan to a new lender:

Fixed rate break costs are the big wildcard. If you are on a fixed rate home loan and market interest rates have risen since you locked in, break costs may be minimal. But if interest rates have dropped, the break cost can be substantial — sometimes tens of thousands of dollars. Always get a quote from your current lender before proceeding with the refinance process.

Many new lenders offer cashback deals ($2,000-$4,000 is common) or waive application and valuation fees to attract refinancers. Factor these into your calculation of total refinancing costs. Some lenders also waive early repayment fees on the new loan, which is worth confirming upfront.

Lenders Mortgage Insurance (LMI) When Refinancing

If your loan to value ratio is above 80% when you refinance, you may need to pay lenders mortgage insurance on the new loan. This is a significant upfront cost that can run into thousands of dollars, especially for higher loan amounts.

Lenders mortgage insurance LMI protects the lender (not you) if you default on the investment loan. The cost depends on the loan amount, LVR, and lender. For a $500,000 investment loan at 85% LVR, lenders mortgage insurance might cost $5,000-$8,000. At 90% LVR, the cost climbs further.

To avoid having to pay lenders mortgage insurance when refinancing, you typically need at least 20% equity in the investment property. This is why it is important to know how much equity you have before starting the refinance process. If your home's equity has grown since you purchased, you may be able to refinance at a lower LVR and avoid LMI entirely.

Break-Even Analysis: When Does Refinancing Your Home Loan Make Sense?

The key question every property investor should ask is: how long until the savings from a lower interest rate exceed the costs of switching?

Here is a simple break-even example:

• Current investment loan: $500,000 at 6.80% interest rate

• New loan: $500,000 at 6.30% interest rate

• Annual saving in interest: approximately $2,500

• Total refinancing costs: $1,500

• Break-even: 1,500 / 2,500 = 7.2 months

If you plan to hold the investment property for more than seven months (almost certainly), the refinance makes sense. If the break-even point stretches beyond two to three years, it becomes less compelling — especially if there is a chance you will sell the rental property or refinance again before then.

Use our refinance calculator to compare your existing loan against potential new home loan rates, factor in all switching costs, and see your break-even timeline.

Tax Implications for Investment Property Loan Refinancing

Here is where refinancing an investment property loan has a significant advantage over refinancing an owner-occupied home loan: many of the switching costs are tax deductible. Property investors can claim tax deductions on a range of borrowing expenses associated with the new loan. If your goal is to reduce non-deductible debt, read our guide on refinancing an investment property to pay off your home loan.

What you can claim as tax deductions

• Borrowing expenses for the new loan (application fees, valuation, legal fees) — tax deductible over five years if the total exceeds $100, or immediately if under $100

• Discharge fees from the old lender — tax deductible in the year incurred

• Break costs on a fixed rate investment loan — tax deductible in the year paid (confirmed by the ATO)

• Ongoing fees like annual fees and offset account fees — tax deductible in the year incurred

• Interest payments on the new investment loan — fully tax deductible as long as the loan is used solely for the investment property

What you cannot claim

• Any portion of the new loan used for personal purposes (e.g., you refinance and draw out additional funds for a holiday — the interest on that portion is not tax deductible)

• Stamp duty on the mortgage (this varies by state)

• Lenders mortgage insurance if the loan is partly for personal use

The tax deductibility of break costs is particularly significant. A $10,000 break cost at a 37% marginal tax rate effectively costs you $6,300 after the tax deduction. This can make refinancing your home loan worthwhile even when break costs seem high at first glance. Always consult your tax accountant or financial adviser about which refinancing costs apply to your financial situation.

How Much Equity Do You Need to Refinance?

Most lenders require at least 20% equity (80% LVR) to refinance without paying lenders mortgage insurance. If your investment property is worth $700,000 and you owe $500,000, your equity is $200,000 — a LVR of 71%, which puts you in a strong position to access the best interest rates.

To calculate how much equity you have:

1. Get an estimate of your investment property's current value (online tools, recent comparable sales, or a formal valuation)

2. Subtract your outstanding loan balance

3. The difference is your home's equity

Lenders will conduct their own valuation during the refinance process, and their figure may differ from your estimate. If the valuation comes in lower than expected, your LVR will be higher, and you may not qualify for the interest rate or loan amount you were hoping for. Getting a realistic picture of your property value before applying can save you time and avoid credit approval issues.

Rental Income and Borrowing Power When Refinancing

Lenders assess your borrowing power based on your income, expenses, existing debts, and the rental income generated by the investment property. When refinancing, your rental income can significantly boost your borrowing capacity: See our guide to how much you can borrow for an investment property.

• Most lenders include 80% of your rental income in their serviceability assessment (the 20% discount accounts for vacancies and expenses)

• Higher rental income means stronger borrowing power, which may qualify you for a larger loan amount or better interest rate

• If your rental income has increased since your original loan approval, refinancing now may unlock better terms

Property investors who can demonstrate strong, consistent rental income across their portfolio will find the refinance process smoother and may access more competitive investment loan products from banks and lenders.

The Refinance Process: Step by Step

What to expect during home loan refinancing

Here is what to expect when refinancing your investment property home loan:

1. Review your current loan — check your interest rate, loan balance, loan term remaining, and any early repayment fees or break costs on your existing loan

2. Research and compare home loans — use online tools, speak to a mortgage broker, or contact lenders directly to find a better investment loan with lower interest rates or better features

3. Apply for the new loan — submit your loan application with income documentation, rental income evidence, investment property details, and information about your financial situation

4. Property valuation — the new lender will arrange a valuation of your investment property to confirm the property value and calculate your LVR

5. Loan approval and credit approval — the lender assesses your borrowing power, credit history, and the investment property's value before issuing formal loan approval

6. Settlement — the new lender pays out your existing loan, registers the new mortgage, and the refinance process is complete

The entire refinance process typically takes 4-8 weeks from application to settlement. Some lenders offer faster turnarounds, especially for straightforward refinances where the property investor has strong income and a low LVR.

Home Loan Refinancing Mistakes Property Investors Make

Should You Refinance Your Investment Property Loan?

Run the numbers before making a decision. If the interest rate savings are clear, the refinancing costs are manageable, and the break-even is short, refinancing your investment loan is one of the simplest ways to improve your cash flow and put more money back into your investment portfolio.

Use our free refinance calculator to compare your existing loan against potential new interest rates, factor in all switching costs including any lenders mortgage insurance, and see your break-even timeline. If you need help navigating the refinance process, speak to a qualified mortgage broker or financial adviser who specialises in investment property lending.

Refinancing with Multiple Investment Properties

Property investors who own multiple investment properties face additional considerations when refinancing. Cross-collateralisation — where multiple properties secure a single home loan — can complicate the refinance process. If your investment loans are cross-collateralised, refinancing one loan may require the agreement of the lender holding the other security.

Many experienced property investors prefer to keep each investment loan separate, with each investment property standing as security for its own home loan. This structure makes refinancing simpler because you can move one investment loan to a new lender without affecting the others. It also reduces higher risk exposure if one rental property's value drops.

When refinancing across a portfolio, consider whether consolidating all your investment loans with one lender (for simplicity and potential package discounts on interest rates) or spreading them across multiple lenders (for risk diversification and access to different loan features) makes more sense for your financial situation.

When Should You NOT Refinance Your Investment Loan?

Refinancing your home loan is not always the right move. Property investors should think twice about refinancing in these situations:

• You are about to apply for another investment loan — refinancing creates a new credit enquiry and resets your loan history. This can temporarily reduce your borrowing power with other lenders and affect credit approval for future property purchases.

• Your employment situation has changed — if you have recently switched jobs, become self-employed, or reduced your working hours, lenders may offer less favourable terms during the loan approval process. It may be better to wait until your income is stable before applying.

• Break costs exceed the savings — if you are locked into a fixed rate home loan with substantial early repayment fees, the break costs may take years to recoup even with a lower interest rate. Run the numbers before proceeding.

• The interest rate difference is minimal — refinancing to save 0.10% on your investment loan is unlikely to justify the refinancing costs, time, and effort involved in switching lenders.

Refinancing costs are generally considered borrowing expenses, which can be tax-deductible if the property is used for producing income.

If the total borrowing expenses for refinancing are under $100, they can be claimed in the same financial year; otherwise, they must be spread over five years or the loan term, whichever is shorter.

When refinancing an investment property, if you draw equity for personal use, the interest on that portion of the loan is typically not tax-deductible.

Expenses related to the discharge of a mortgage can be claimed in the year they were incurred, while some refinancing costs can be added to the investment's cost base for capital gains tax purposes.

Most lenders will not consider refinancing applications if the loan-to-value ratio (LVR) is above 80%, as this indicates higher risk.

Refinancing an investment property can help reduce your interest rate, potentially leading to significant savings on monthly repayments.

The average investment loan interest rate for new loans in Australia is 5.69% p.a., which is typically higher than owner-occupier home loan rates by about 0.25%.

Investment loans are generally considered riskier for lenders, leading to stricter lending criteria and higher interest rates compared to standard home loans.

In 2026, lenders apply a 3% serviceability buffer, meaning borrowers are assessed against higher interest rates to ensure repayment capability.

The new lender will conduct a formal valuation of the property to confirm its current market value during the refinancing process.

Upfront costs for refinancing can include application fees, valuation fees, legal fees, and discharge fees, generally ranging from $500 to $2,000.

Most lenders will not consider refinancing applications if the loan-to-value ratio (LVR) is above 80%, as this indicates higher risk for the lender.

Start your free PropBoss account and start tracking your investment property portfolio today.