Refinancing an Investment Property: How to Analyse the Numbers

Refinancing an Investment Property: How to Analyse the Numbers

Refinancing an investment property is worth it when the total benefit over the time you will actually hold the new loan is bigger than every cost of switching, and when the new structure does not damage your tax position. That sounds simple. In practice it takes four checks: the cost and break-even, whether you still pass a lender’s serviceability test, how the loan purpose affects your interest deductions, and what the switch does to your wider portfolio. This guide walks through each one with worked examples.

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TL;DR

  • Compare the full switching cost against the saving over the period you will keep the loan, not against the headline rate gap.
  • A refinance is assessed as a new loan, so APRA’s serviceability buffer of at least 3 percentage points applies again.
  • Any equity you pull out for private use becomes permanently non-deductible in proportion, so keep investment and private debt in separate loans.
  • Resetting to a 30-year term can lower repayments while raising lifetime interest. Keep your original remaining term where you can.
  • If you bought before the 12 May 2026 Budget announcement, get tax advice before restructuring so you do not put negative gearing treatment at risk.

Table of Contents

What a refinance analysis actually has to answer

Most people refinance because a rate looks better. That is a fair trigger, but it is only the first input. A proper analysis answers five questions:

  1. What will it cost to leave the current loan and start the new one?
  2. How much will I save each month and each year, and how long until the savings repay those costs?
  3. Will a new lender approve me at today’s assessment rates?
  4. Does the new loan structure change what I can deduct at tax time?
  5. Does this move improve my portfolio, or only my repayment?

The rest of this article takes them in order.

Step 1: Count every cost of switching

Switching costs vary far more than most borrowers expect. Canstar’s analysis put the average cost of refinancing at $831, with a range from $165 to $2,756 depending on the lender and loan type. The usual line items are:

Cost Typical range (Canstar, 2024)
Discharge fee on the old loan $150 to $795
Application fee on the new loan $150 to $990
Valuation fee $200 to $484

To these, add anything the averages do not capture in your case:

  • Break costs on a fixed-rate loan. If you are leaving a fixed rate early, ask your lender for a written break cost estimate. It can swamp every other line item.
  • Lenders mortgage insurance (LMI). If your new loan is above 80% of the property’s value, a new lender may charge it again.
  • Stamp duty-free but not cost-free. Refinancing itself does not trigger purchase stamp duty, but check for state mortgage-related government fees on discharge and registration.
  • Loss of an existing discount or offset feature. A lower rate is not a win if you lose an offset account that was saving you interest on cash you hold.

The Moneysmart mortgage switching calculator is a neutral place to test a first pass on savings against these costs.

Step 2: Work out your break-even point

Break-even is the number of months until cumulative savings exceed your switching costs. The formula is:

Break-even (months) = total switching cost ÷ monthly saving

A worked example (hypothetical)

Say you owe $500,000 on an investment loan at a variable rate and a new loan is 0.40 percentage points cheaper.

  • Annual interest saving, roughly: $500,000 × 0.004 = $2,000, or about $167 a month.
  • Switching cost at the Canstar average: $831.
  • Break-even: $831 ÷ $167 is just under five months.

Now change one number. If you are leaving a fixed loan and your break cost is $6,000, the break-even becomes roughly 41 months. If you expect to sell or refinance again within three years, the switch loses money.

For a sense of scale at the larger end, Canstar’s July 2026 analysis found that a borrower with a $600,000 balance and 25 years remaining could save at least $10,713 over two years by refinancing to a rate under 6%, even after allowing $1,150 in switch costs. That assumes particular rate movements, so treat it as an illustration of scale, not a promise about your loan.

Two traps in break-even maths

The rate gap is not static. Lenders often price new customers more keenly than existing ones, then let the gap close. Ask what the rate has been for existing customers over the past couple of years, not just today’s advertised rate.

Interest is not the whole story. Compare the rate on the same basis: investor versus owner-occupier pricing, interest-only versus principal and interest, and the same loan-to-value band. Our guide to owner-occupier vs investor loans explains why those categories price differently.

Step 3: Will a new lender approve you?

A refinance is a new loan application, not a rate change. That means a full serviceability assessment. APRA’s current settings require regulated lenders to assess new borrowers with a buffer of at least 3 percentage points above the loan interest rate, so you must show you could still meet repayments if rates rose by that much.

For an investor this can bite in surprising ways:

  • Your existing loan may have been approved years ago under looser conditions. A new lender will test it at today’s assessment rate.
  • Other debts, including loans on other properties, credit card limits and HECS-HELP, all count in the assessment.
  • Rental income is usually shaded by lenders rather than counted in full, so your usable income can be lower than what lands in your account.
  • Interest-only periods make the assessed repayment higher, because lenders test the principal-and-interest payment over the shorter remaining term.

Run this test before you pay for a valuation or apply. A declined application can leave a mark on your credit file, and the time spent is wasted. Our articles on the APRA 3% buffer and debt-to-income limits and portfolio LVR show how to test your numbers first.

Step 4: Check the tax consequences before you sign

This is where refinancing an investment property differs most from refinancing a home.

The purpose of the borrowing decides deductibility

The ATO looks at what the borrowed money was used for, not what secures the loan. In its guidance on interest expenses, interest is deductible only to the extent the funds were used to produce assessable income, such as buying or repairing a rental.

So if you refinance and draw out extra equity for a private purpose, that part of the loan is not deductible, and you must apportion interest across the loan.

Example from the ATO’s approach: on a $400,000 loan where $20,000 was used privately, only 95% of the interest is deductible. Because it is apportioned by ratio, the private slice stays non-deductible even if you later pay down the balance in ways that blur the split. The practical rule is to keep it clean: split the facility so the investment portion and any private portion sit in separate loan accounts from day one. Our deeper look at cash-out refinancing and what lenders and the ATO check covers this, and so does modelling APRA buffers and ATO tax risk before borrowing against equity.

Loan split showing deductible and private portions

One useful case runs the other way. Equity released to buy another investment property, or to fund genuine improvements to a rental, relates to income-producing purposes, which is how investors typically grow a portfolio. The loan split and the paperwork still need to show that.

Negative gearing after the 2026 Budget

The MFAA’s summary of the 2026-27 Federal Budget indicates that refinancing an existing investment property generally preserves negative gearing treatment where the property was held before the 12 May 2026 announcement. It also cautions that restructuring loans or substantially increasing borrowings for non-investment purposes could put that grandfathered status at risk. Rules in this area are still moving, so confirm the current position with a registered tax agent or accountant before you change the structure of your investment debt.

Keep records

The ATO expects you to keep records that support your claims and your later capital gains calculation. See its page on record keeping for rental properties. After a refinance, keep the new loan contract, the loan split documents and statements showing where each drawdown went.

Step 5: Watch the loan term and the loan features

The cheapest way to lower a repayment is to stretch the term. It is also one of the more expensive ways to borrow. An ASIC review of debt consolidation, Report 358, found that the most common solutions offered to consumers involved extending loan terms, often resetting to 30 years. That is a 2013 report on a different type of refinancing, but the arithmetic is the same today: a lower repayment on a longer term means more total interest.

Same term versus reset: an illustration (hypothetical)

You owe $500,000 with 22 years remaining. A refinance resets you to 30 years at the same rate. Your repayment falls, which feels like a win, but you pay interest on a large balance for eight extra years. If you want the lower repayment, a better approach is to refinance for the remaining term and make the repayment you chose. Many lenders let you do that. If you want flexibility, keep a redraw or offset facility rather than lengthening the loan.

Other features to compare, beyond rate:

  • Offset account and redraw access
  • Interest-only availability and how long it lasts
  • Ability to split the loan between fixed and variable
  • Cross-collateralisation requirements, which can tie several properties to one lender
  • Ongoing annual fees

If you use a mortgage broker, understand how they are paid. ASIC has previously flagged that commission structures can create product conflicts, for example by favouring larger loans. Ask for the comparison on features and suitability, not rates alone. Our explainer on broker versus bank and the best interests duty sets out what to ask.

Step 6: Look at the whole portfolio, not one loan

A rate saving on one property can be the wrong move for the portfolio. Three questions help:

Is the property doing its job? CoreLogic’s research says high yields support short-term cash flow but long-term wealth is primarily driven by capital growth, and it recommends regularly benchmarking performance against market data to know when to refinance or release equity. If a property is lagging its suburb, a cheaper loan will not fix that. See rental yield vs capital growth for how to weigh the two.

What does your cash flow look like after the switch? Model it month by month, including vacancy, rates, insurance, rates and strata. Moneysmart cautions that you should not rely solely on rent to cover repayments, because vacancies and rising interest rates can quickly drain cash flow. Our guide to a property cash flow forecast shows how to build one.

Step 6: Look at the whole portfolio, not one loan — overview diagram

What will the equity do? Releasing equity is only sensible if the next use earns more, after tax and costs, than the debt costs. Test it over a long horizon using long-term property projections, and test a downside case where growth is flat and rates are higher.

A simple refinance checklist

  1. Get your current loan balance, rate, remaining term and any break cost in writing.
  2. Estimate the market value of the property and your loan-to-value ratio.
  3. List every switching cost, then calculate break-even in months.
  4. Compare features and the real term, not just the rate.
  5. Check serviceability using the assessment buffer, including all other debts.
  6. Decide the purpose of every dollar you borrow, and split loans accordingly.
  7. If you bought before the 12 May 2026 announcement, speak to a tax adviser before restructuring.
  8. Stress-test cash flow with a higher rate and a vacancy period.

Run the numbers in WealthStacker

The checklist above is a lot of arithmetic to keep in a spreadsheet. WealthStacker is built to take that load: free automated quarterly property valuations to keep your loan-to-value estimate current, portfolio tracking, 15-year investment modelling, borrowing power estimates and an AI chat assistant you can use to test a scenario. You can explore the toolkit or join via the sign-up page. It supports your decision; it does not replace advice from a licensed broker, accountant or financial adviser for your circumstances.

FAQ

Can you refinance an investment property?

Yes. You can refinance with your current lender (an internal refinance) or move to a new lender (an external refinance). A new lender will treat it as a fresh application, so it will assess your income, debts and the property’s valuation again.

What is the best way to refinance an investment property?

Start with the break-even calculation, then compare loans on features and term as well as rate. Keep investment and private borrowings in separate loan accounts, and keep your original remaining term if you can. A broker or accountant can help you with structure for your situation.

What is the 2% rule for refinancing?

It is a rough rule of thumb that you should refinance only if the new rate is meaningfully lower, with 2 percentage points often quoted. It is not an Australian regulation, and it is too blunt. A gap of 0.4 points can be worth it on a large balance with low switching costs, as the worked example above shows. Calculate break-even instead.

Does refinancing affect my tax deductions?

It can. Interest is deductible to the extent the borrowed money produces assessable income, so any equity taken out for private use is apportioned out as non-deductible. If you hold a property purchased before the 12 May 2026 Budget announcement, also seek advice on how a restructure could affect negative gearing.

Sources

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