Why refinancing for a home loan top-up isn't always your best option

Brought to you by Futurerent.

Any property investor who has refinanced their home loan will agree that it’s a painful process. So painful that it only makes sense to do it if the numbers really stack in your favour. If you refinance your home loan to get a better deal, you’ll most likely be comparing interest rates to save money in the long term.

But if you’re a property investor refinancing to increase (or top up) your home loan, this isn’t necessarily going to be your best option, especially if you don’t need a huge amount of money. At Futurerent, we enable you to unlock up to $100,000 of your rental income, so you don’t have to get a new loan (because really, that’s what refinancing is).

Let’s run the numbers

When comparing refinancing and its alternatives, looking at interest rates alone can be misleading. This is because the repayment term is just as important. Banks love talking about the interest rates of refinancing but shy away from how long it takes to pay the entire loan off.

Confused? We’ll show you with real numbers.

Let’s say you need access to $25,000. You can choose to pay an interest rate of:

  1. 1) 5.1% per annum over 30 years – this is the RBA’s average investor home loan rate or

  2. 2) 6% per annum over 1.5 years – this is the fixed fee Futurerent charges over the shortest term.

Show me the money

Naturally, your eyes are drawn to the interest rate with the lower number. It can be tempting to bump that $25,000 onto your 30-year mortgage and pay it off along with the mortgage you’ve already got.

Let’s look at a second set of numbers, this time in dollar figures. Would you rather pay: