Considerations When Refinancing Your Investment Loan

If you have an investment loan, you may wish to refinance it to change the terms of the initial loan. Investment loan refinancing is a technical process that needs careful consideration. Below is an extract detailing some deliberations to make when refinancing your investment loan

Assess The Eligibility Criteria

Start by checking whether you qualify for investment loan refinancing. In most cases, lenders will only refinance the loan if you have repaid a specified amount. Additionally, they might need to assess the property or your finances to ensure you can repay any extra credit you take. The lender will also check whether you have made your repayments on time. 

Determine The Need For Refinancing 

Why do you want to refinance the investment loan? Below are some motivations to refinance an investment loan: 

  • When you want to reduce the interest rate. In this case, you need to assess the loan market to establish whether the interest rates have dropped since you took the loan.
  • When you want to change the loan from variable to fixed-rate or vice versa. It also calls for a market assessment to determine the long-term effects of the change. For instance, if you change to a fixed rate, you must be sure that the interest rates will increase in the future.
  • When you wish to change the lender. For instance, the current lender might offer poor quality services or harsh penalties if you are late with repayments.
  • When you need to change the loan to interest-only repayments. It gives you sufficient working capital to pursue other interests.
  • When you wish to cash out on the property's equity. If this is the case, check how much money you can access vis-à-vis the refinancing costs. 

Choose A Suitable Lender 

Compare the terms of the various lenders to determine which bank has friendly refinancing terms. A significant concern would be the refinancing costs. Depending on the lender, you might have to part with application, discharge, loan establishment, and exit fees. Besides, some lenders charge break costs if the initial loan had a fixed-rate interest. You will also pay for mortgage insurance if you had not repaid the initial loan to a specified threshold. 

If you opt to change lenders, check how the new lender treats clients. For example, how easy is it to talk to customer care representatives? Does the lender give customers regular updates regarding their loan repayment status? Read the fine print of the refinancing agreement to know whether the arrangement exposes you to additional costs in the long term.

When refinancing your investment loan, assess the eligibility criteria, determine the need for refinancing, and choose a suitable lender.