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Property investors are increasingly seeking to refinance their loans following the Reserve Bank of Australia’s (RBA) recent interest rate cut, according to Think Mortgage director Kapil Virmani.
“I’ve seen significant movement in investor clients looking to ensure they are on competitive rates. The rate cut has served as a catalyst for them to conduct a thorough health check of their existing home loans,” Virmani said.
He said that a larger portion of his investor clients are considering refinancing compared to owner-occupiers.
“Of course, everyone wants a lower rate, but this is particularly the case with investors, who regard their property as a financial asset and are very numbers-driven. Owner-occupiers are more likely to set and forget their home loan,” he said.
Virmani noted that the influx of investor inquiries started the day after the RBA’s 19 February rate cut and has continued since.
“After almost three years of rising and elevated rates, there’s clearly pent-up demand from investors for lower rates,” Virmani said.
Although the latest lending data from the Australian Bureau of Statistics has not yet been released, historical data from previous RBA rate-cutting cycles showed a clear link between lower rates and higher investor refinancing activity.
For instance, during the last rate-cutting cycle in June 2019, external refinancing by investors rose by 19.4 per cent, from $9.59 billion in the June quarter to $11.45 billion in the December quarter.
With further rate cuts expected, some investors are questioning whether to refinance now or wait for additional reductions. Virmani believes that it is generally better to act sooner.
“The sooner an investor refinances, the sooner they start reducing their repayments and increasing their return on investment,” he said.
He also said that lenders are already adjusting their rates in line with the RBA’s decision, often using such periods to attract new borrowers.
“Those who refinance now can take advantage of this competitive period,” Virmani said.
“Also, many investors are starting from a higher rate due to older or less favourable loans, so any reduction is a significant improvement.
“And borrowers on a variable-rate mortgage will benefit from further savings should interest rates continue to drop as anticipated.”
Virmani said that while many investor discussions have initially centred around lower rates, some clients have also realised additional benefits during their refinancing conversations.
“If you’re an investor and you hear rates are falling, it’s a natural reaction to want to capitalise on that,” he said.
“However, because many investors are still on loans they took out before the pandemic, they then discover, during the refinancing discussion, that they have more equity than they realised. As a result, they have the ability to use that equity to fund the deposit on another investment property.
“Others discover that they can improve their financial position, including gaining tax benefits, through restructuring their loans. These are the kinds of discussions investors are now having as a result of the RBA rate cut.”
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