Refinancing an investment loan only makes sense when the savings clearly outweigh the costs of switching. For Chapel Hill investors, the key is to look at the whole picture, including how the new loan is structured for tax.
At TAP Mortgage Solutions, we help investors work out whether a switch will leave them ahead after fees, or whether staying put is the smarter call. Here is how to think it through.
When Is It Worth Refinancing an Investment Loan?
It is worth refinancing when the savings from a lower interest rate or improved features exceed the total cost of switching. Those costs can include discharge fees, application fees and, on a fixed loan, a break fee.
Three situations usually prompt a review. The first is a fixed rate expiry, where you are coming off a fixed rate and may roll onto a higher variable rate. The second is a loan that has sat untouched for years while you pay more interest than you need to. The third is a plan to access equity to buy the next property.
A loan health check is a sensible first step. It compares your current rate, fees and features against what is available, depending on your deposit size and lender.
The main trade-off is that switching costs money upfront. If your savings are small, a refinance may not pay off, and a good broker should tell you that.
What Does a Refinance Cost?
The main refinance costs are a discharge fee on your old loan, an application fee on the new one, and a break fee if you leave a fixed loan early. Lenders set these amounts, so they vary.
Exit fees on residential loans taken out on or after 1 July 2011 are generally prohibited under the National Consumer Credit Protection Regulations. That prohibition does not cover break fees or discharge fees, so check your contract before you move.
If you have less than 20 per cent equity, you may also face lenders mortgage insurance. ASIC's Moneysmart site notes this can raise the cost of switching.
When we assess a switch, the question is whether the overall saving covers all the costs, including any broker fees. If it does not, staying put is often the right answer.
How Does Refinancing Affect Your Tax Deductions?
Interest is deductible only on the part of a loan used for the rental property, and a refinance can change that split. The ATO looks at what the borrowed money was used for, not what property secures the loan.
Suppose a Chapel Hill investor has an investment loan and wants to refinance and borrow extra to renovate the rental. Later, they want to add some cash for a family holiday. As an example, if the extra borrowing is split between the renovation and the holiday, the interest on the holiday portion is not deductible. The ATO's apportionment method applies to the whole loan, and principal repayments are split in the same ratio, so repaying only the private part is not an option.
The solution is to keep the borrowing separate. A separate split for private spending, kept apart from the investment loan, keeps the records clean and the deductible portion clear. The outcome is a loan structure where each dollar has a clear purpose, which makes tax time much more straightforward. Your accountant should confirm how your deductions work, as no tax outcome is certain.
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Book a chat with a Mortgage Broker at TAP Mortgage Solutions today.
How Do You Refinance to Access Equity for the Next Property?
You can refinance to release equity by borrowing more against a property you own, subject to the lender's valuation and your ability to service the larger debt. The extra funds can then go toward a deposit on the next purchase.
Lenders will order a property valuation and work out how much you can borrow. Your borrowing capacity matters here. Lenders must assess whether you can afford repayments at a rate 3 percentage points above the loan rate, per APRA's serviceability buffer, which APRA confirmed would stay at 3 percentage points in May 2026.
The trade-off is a bigger loan and higher repayments. If the new property does not perform as hoped, you carry that debt across more than one property.
Chapel Hill is a good example of why a careful look at the numbers matters. CoreLogic data via Your Investment Property puts the suburb's house median rent at $950 a week and gross yield at 3.03% (June 2026). A yield like that means rent alone may not cover loan costs, so cashflow planning needs to be part of the equity decision.
What About Offset Accounts and Redraw on an Investment Loan?
An offset account or redraw facility can reduce the interest you pay, but each works differently. An offset account sits beside your loan, and the balance reduces the interest charged. Redraw lets you withdraw extra repayments you have made.
For investors, redraw needs care. The ATO treats a redraw used for private purposes as changing how your loan interest is split from that point. Keep in mind that an offset account reduces the interest charged, which also reduces the interest you can claim as a deduction.
Both features can come with higher rates or annual fees depending on the lender, so weigh the cost against the interest you expect to save.
What Happens With Negative Gearing If You Refinance?
The negative gearing rules are framed by when you acquired the property and whether it is a new build. Properties held at 7:30pm AEST on 12 May 2026 keep their current treatment until sold.
Government and ATO guidance does not yet confirm how a refinance, a change of lender or a loan increase affects a property held at that time. Get advice before restructuring a loan on a property you hold.
For established residential properties bought after that time, net rental losses from the 2027-28 income year are deductible only against residential property income.
How Does the Refinance Process Work?
The refinance process starts with a review of your current loan and ends with your old lender discharging it. In between, you apply, the new lender values the property and assesses your finances, and the loans are swapped at settlement.
Your broker will gather your current loan details, rental income and repayment history. For a like-for-like switch to a lower rate with no extra borrowing, ASIC guidance says the lender can look closely at your repayment history. Regular on-time payments count in your favour.
If you have a loan on a 5% Deposit Scheme or Help to Buy arrangement, check the conditions first, as moving to a lender outside the scheme can change your cover.
Ready to Review Your Investment Loan?
Call one of our team at TAP Mortgage Solutions or book an appointment at a time that works for you. We will run the numbers on your investment loans, explain the costs and trade-offs plainly, and tell you honestly whether a refinance is worth your while. Talk to Troy Powell or visit our Chapel Hill team page to get started.
Frequently Asked Questions
When is it worth refinancing an investment loan?
It is worth it when the savings from a lower rate or improved features are greater than the switching costs. Those can include discharge fees, application fees and break fees on a fixed loan.
Can I claim interest on extra money I borrow when I refinance?
Only the part of the loan used for the rental property is deductible. Interest on any portion used for private purposes is not, so ask your accountant how your deductions will work.
Are there exit fees when I refinance a home loan?
Exit fees on residential loans entered into on or after 1 July 2011 are generally prohibited. Break fees on fixed loans and discharge fees are not covered by that prohibition, so check your contract.
Does refinancing change my negative gearing treatment?
The rules are framed by when you acquired the property and whether it is a new build. Government and ATO guidance does not yet confirm how a refinance, lender change or loan increase affects a property held at 12 May 2026, so get advice before restructuring a loan on a property you hold.
