How refinancing your home loan could support your investing goals
For many Australians, a home loan is one of the largest financial commitments they’ll take on. But over time, changes in interest rates, property values or personal circumstances can create opportunities to reassess how that loan is structured.
One option some borrowers explore is refinancing. While it’s often discussed in the context of reducing repayments or securing a different loan structure, refinancing may also play a role in broader financial planning, including freeing up capital that could be used for other purposes, such as investing.
What does refinancing mean?
Refinancing involves replacing your existing home loan with a new one, either with your current lender or a different one.
Borrowers may refinance for a range of reasons, including:
- Reviewing their interest rate or loan features
- Consolidating debts
- Changing loan types (for example, from fixed to variable)
- Accessing equity built up in their property
Accessing equity is one area where refinancing may intersect with investing.
Understanding equity and usable equity
Equity is the difference between your property’s market value and the remaining balance on your home loan.
For example:
- Property value: $800,000
- Loan balance: $500,000
- Equity: $300,000
However, not all of this equity is typically accessible. Lenders generally allow borrowers to access a portion of it, often referred to as usable equity, depending on their lending criteria and individual circumstances.
This usable equity may be accessed through refinancing or by increasing the loan amount, subject to approval.
How refinancing could free up funds
When refinancing, some borrowers choose to increase their loan amount to access part of their usable equity as cash (often called a “cash-out refinance”).
This capital could potentially be used for a range of purposes, such as:
- Renovations
- Debt consolidation
- Building a financial buffer
- Investing in other assets
It’s important to note that accessing equity increases the size of your loan and may affect your repayments and overall interest costs over time.
Using released funds for investing
For those considering investing, having access to additional capital can open more options.
In addition to traditional asset classes like shares and ETFs, Raiz also offers exposure to residential property through the Raiz Property Fund, which allows investors to gain fractional exposure to a portfolio of Australian residential properties without purchasing a property directly.
This can be relevant for:
- Individuals who don’t have the capital to purchase an investment property outright
- Renters (who make up around 53% of Raiz users) looking to gain some exposure to property
- Investors looking to diversify beyond a single asset class
How refinancing and investing may connect
In some cases, refinancing may create an opportunity to:
- Access usable equity from a property
- Allocate a portion of that capital toward investments
- Build a more diversified financial position over time
For example, someone might refinance to access $50,000 in usable equity. Rather than using all of it at once, they may choose to gradually invest portions of that amount into a diversified portfolio via an app like Raiz.
This kind of approach may allow for:
- Greater flexibility in how funds are allocated
- Gradual entry into markets rather than lump-sum investing
- Exposure to multiple asset classes, including property
However, outcomes can vary depending on market conditions, investment choices, and individual financial circumstances.
Things to consider before refinancing to invest
Refinancing to access funds for investing will not suit every borrower. There are several factors to consider:
1. Loan costs and fees Refinancing may involve costs such as discharge fees, application fees, or valuation fees.
2. Interest costs over time Increasing your loan amount means paying interest on a larger balance.
3. Cash flow and repayments
Higher loan balances can lead to higher repayments, depending on the loan structure.
4. Investment risk All investments carry risk, and returns are not guaranteed. The value of investments can rise or fall over time.
5. Personal financial goals What works for one person may not suit another. Time horizon, risk tolerance and financial priorities all play a role.
Given these variables, some people choose to seek independent financial or lending guidance before making decisions.
Where Raiz fits into the picture
Raiz is designed to support everyday investing by making it easier to get started with smaller amounts and build over time.
Aussie Home Loans has partnered with Raiz Rewards. If you explore refinancing through Aussie, you may be eligible for a cashback reward up to $490, which is invested directly into your Raiz account.
When it comes to residential property investment through Raiz, around 30% of Raiz Plus users choose to include property exposure in their portfolios, and property-focused options also rank among the more popular choices in Raiz Super portfolios.
This indicates that, for some investors, property remains an important part of a broader investment mix, even when accessed in a different way.
Taking a balanced approach
Refinancing and investing are both tools that can play a role in a broader financial strategy. When considered together, they may complement each other, but they also come with trade-offs.
Rather than focusing on a single outcome, it can be helpful to consider:
- Your current financial position
- Your comfort with risk
- Your long-term goals
- The flexibility you want in managing your money
Refinancing may provide a way to restructure your home loan and, in some cases, access equity that could be used for other purposes, including investing.
For those looking to build investments gradually, platforms like Raiz provide a way to access diversified portfolios, including residential property exposure, without needing large upfront capital.
As with any financial decision, it’s important to consider how these options align with your personal circumstances and your longer-term plans.
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Important Information
This blog has been issued by Instreet Investment Limited (ACN 128 813 016 AFSL 434776) as Responsible Entity of the Raiz Invest Australia Fund (ARSN 607 533 022) and has been prepared without taking into account your objectives, financial situation or needs. Before acting on such information, you should conduct your own review or consult a financial advisor before making a decision to invest. Please read the relevant Product Disclosure Statement and any associated reference documents before making an investment decision. In accordance with the Design and Distributions Obligations, we maintain Target Market Determinations for our Funds. All documents can be found on the Raiz website www.raizinvest.com.au, or calling the Customer Support team on 1300 754 748. Please note that past performance is not a reliable indicator or guarantee of future performance. Historical returns, forecasts, and market commentary are provided for general informational purposes only. All investment carries risk and may result in loss of capital.
