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

Person signing a contract for a mortgage refinancing
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Refinancing a mortgage for a renovation can be tempting, but it can also bring with it additional costs. Photo: Shutterstock

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

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.

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.

Futurerent, a loan-free alternative to the banks, enables you to unlock up to $100,000 of your rental income, so you don’t have to deal with the banks and 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? Here are some real numbers to do a proper comparison. 

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

1)  3.42 per cent per annum over 30 years – this is the RBA’s average investor home loan rate for existing mortgages

or  

2)  6 per cent 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 already have.  

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

1)  $15,370

or  

2)  $2,250?  

It’s not hard to guess which one most people would choose.  

Option 1) Pay $15,370

The first option is the amount of interest you’d need to pay by topping up your mortgage by $25,000 and allowing the interest to accumulate over 30 years, based on the rates in the first set of numbers.

Note that we haven’t even included other refinancing costs, such as break costs, establishment fees and monthly account-keeping fees.  

Option 2) Pay $2,250 

The second option is your cost over 1.5 years if you access $25,000 of your rental income upfront using Futurerent.

They only charge a single fee, so there’s nothing else you need to account for. You’ll also continue to receive ongoing rental income each month over the 1.5 year repayment term. 

Avoid a lifetime of interest  

On the surface, topping up your mortgage sounds like a set-and-forget approach, but that’s exactly what the banks want you to think. In that example, you’d be more than $13,000 worse off if you refinanced!  

So, whether you’re looking to use the funds to invest in your business, buy another property 
or do a renovation, it’s important to crunch the numbers before making any financial decisions.   

See how much you can save with Futurerent’s pricing comparison calculator or learn more about how upfront rent works.   



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