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How to switch investment home loans to a better rate

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By switching investment home loans, you have the potential to make a big saving by securing a lower interest rate. Not only this, but you could also find a loan that better suits your needs and changing lifestyle.

The process of switching to a new home loan is known as refinancing. Don’t be afraid to refinance, it’s a smart thing to consider doing every couple of years and particularly while interest rates are at a historic low, as they are now.

In this article, we’ll give you some pointers to help you switch to an investment home loan with a better interest rate.

Ask your lender for a better rate

One of your first moves should be to find out what interest rates your lender is offering to new investors. This could help you to avoid fully refinancing and get you a lower rate. Make sure that you look at investor home loan rates, rather than interest rates for owner occupiers. When you invest in property, you can expect to pay more in interest than most people buying homes to live in.

If you can see that your lender is offering lower rates to newer investors, you can negotiate a lower rate for yourself. This way, your lender could just pass on the lower rate without requiring you to refinance. If you’d prefer, Lendi’s Home Loan Specialists are happy to negotiate on your behalf.

By sticking with your existing lender, you get the benefits of convenience and familiarity. If you have no issues with your lender, other than the interest rate you are currently on, it can make sense to stick to what you know.

If you are unhappy with how your existing lender communicates, or are wanting a fresh start, it may be time to look elsewhere. Similarly, if your lender’s rates aren’t competitive enough, don’t be afraid to consider other options.

Use an online home loan platform

To make the refinancing process easier for you, try out Lendi’s home loan platform. Using the platform you can search, compare and apply for home loans from the comfort of your own home. With over 35 different Australian lenders in our books, you are likely to find a new home loan that suits you in no time.

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Lendi’s Home Loan Specialists will help guide you through the process and answer any questions you may have along the way. If you’d like to find out more about refinancing with Lendi, check out our guide or book an appointment with us today.

Try to have at least 20% equity

How much equity can you access?


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While not necessarily essential to refinancing, your home loan options will be greater if you have at least 20% equity in your property. Equity indicates how much of your property you own outright. It isn’t just calculated by how much you’d paid off your loan, but is instead the difference between your home’s current value and your loan balance.

It’s likely that your property’s value has changed since you purchased it — that’s just how the property market works. Plus, if you’d renovated or made any changes to your home, it’s value may have changed.

Some areas experience unexpected growth due to becoming ‘trendy’, local infrastructure developments or being located within a desirable school zone. Other changes in the economy can also affect property value.

You can try out our equity calculator above to get an idea of how much you have. However, in order for home equity to be properly calculated, your home does need to be formally valued. Many lenders will perform property valuations for free when you refinance, but you can seek out an independent property appraiser if you wish.

If you try to refinance with less than 20% equity, you may be charged Lenders Mortgage Insurance (LMI).

Financially prepare yourself

The better your financial position, the more bargaining power you have when it comes to refinancing or getting a lower interest rate with your current lender. In addition to having upwards of 20% home equity, lenders will look at a borrower’s income, credit score and financial habits.

For investors, your rental income will also be assessed. If your rental income covers your mortgage and any property expenses, lenders will look at this favourably. By being in a solid financial position, you suggest that you are a low-risk borrower to whom the bank can offer a lower interest.

Before refinancing your investment home loan, spend some time assessing your financial situation. Focus on making regular, on-time repayments on your mortgage and any other loans or credit cards. Also work on building your savings and try to spend your money responsibly.

Here are some articles to help you refresh your finances ahead of refinancing:

What happens when I’m refinancing from an interest only investment home loan?

Many property investors get an interest only home loan to begin with to maximise their cash flow. This can be a great option as the interest you pay will often be tax deductible.

However, if you don’t sell your investment property before the end of the interest only period, you will experience a sharp incline to your monthly expenses. Going from making interest only repayments to paying off the interest and principal (loan amount), can be a big adjustment.

Make sure that you plan accordingly to guarantee that you’ll be able to handle the increased repayments. A benefit of switching from an interest only loan to a principal and interest (P&I) loan is that you can expect a lower interest rate.

Interest only home loans are considered risky for banks, so they charge higher interest rates as insurance. If you switch to a P&I loan early, you’ll pay less interest over the life of your loan.

Can I extend my interest only investment home loan?

Lenders have different attitudes and policies regarding interest only home loans. Some will be more willing to provide extensions, assuming that you have been making interest repayments. Others will have a more conservative approach.

Most interest only periods are between 1 and 5 years. If your original interest only term was, for example, 3 years, you may be able to extend it to 5 years.

Remember that with an interest only loan, you aren’t reducing the principal (loan amount) at all. Sometimes it is smarter to switch to making P&I repayments. If you are approaching the end of your interest only period, consider speaking to a financial adviser or mortgage broker to get guidance on your situation.

Add loan features to enhance your new mortgage

If you aren’t already using them, think about adding a loan feature when refinancing. An offset account or redraw facility can save you thousands in interest if used strategically. An offset account is like a savings account attached to your home loan. Any funds in this account reduce the interest you have to pay on a monthly basis.

For example, if you have a $200,000 loan balance with $20,000 in your offset account, you’ll only be required to pay interest on $180,000. A redraw facility is similar, except it pools your extra repayments which in turn offsets your interest charged.

How much can you save with an offset account?

Find out how much you could save each month.

Calculate savings

Calculate your refinancing costs

Most people have the goal of saving money when they refinance their investment home loan. This means that you need to consider whether refinancing will be worth it, in light of the costs involved.

If you are refinancing your fixed rate home loan, you may have to pay break costs if you are refinancing before the end of your fixed period. Speak with your existing lender to determine how much you’ll need to pay. If you break costs are too high, consider waiting until the end of the fixed period.

Other costs may include:

  • Annual or monthly maintenance fees
  • Application and establishment costs
  • Exit fees
  • Fees associated with home loan features
  • Property valuation
  • LMI
  • Mortgage registration fees

Many lenders won’t charge all of these fees. It’s best to read the fine print and speak to a Home Loan Specialist to make sure that refinancing makes sense for you.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, investment, investment property, investment loan, refinance, investing

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Important legal stuff
Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
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