Property refinancing is a useful but somewhat misunderstood tool that savvy property investors use to grow their property portfolios and improve cash flow. IGrow Wealth Investments aims to equip our investors with the appropriate strategies needed to build long-term wealth. One of these strategies involves property refinancing.
Jacques Fouché, IGrow’s CEO and Founder, calls refinancing a key investment strategy. Jacques teaches everyday investors that the “The Triple R’s of Property Investing”— Retain, Refinance, and Reinvest offer a roadmap to financial growth through buy-to-let properties. You can watch a handy explainer video where Jacques explains “The Triple R’s of Investing” on IGrow’s website.
If you are wondering what exactly property refinancing is, and how you know when it’s the right strategy, we’ll break down the concept in this post.
What is Property Refinancing?
Property refinancing means accessing the equity in a property you already own. This could be to obtain better interest rates (e.g. by moving to a different bank or changing the bond term), to reduce your home loan repayments, or to cash in on the equity from your property. Property investors often refinance to gain capital (equity) from a property that has appreciated over time. This means they can finance their next investment.
EQUITY = Property Value – What You Still Owe
For example: If your investment property is worth R1,000,000 and you owe R300,000 on your bond, you have R700,000 in equity.
In tapping into accumulated equity, refinancing is a stepping stone to buying further rental properties.
“When used wisely, refinancing can create a compounding effect—enabling investors to grow their portfolios exponentially while retaining their existing assets.” – Jacques Fouché, IGrow’s CEO and Founder
Coming to understand property refinancing is critical for property investors seeking to enhance their long-term wealth. It’s not a mere financial trick; it is a strategic tool that aligns with IGrow’s long-term investment philosophy: buy wisely, hold onto your property for the long term, and leverage your financing through refinancing your properties, carefully.
How Does Refinancing a Property Work?
Property refinancing can come into play after you have assessed your property’s current value. If your property has appreciated since purchase, it may qualify for refinancing to unlock its valuable equity.
Property can gain equity pretty quickly as it tends to appreciate in value over time – so it’s not just how much you’ve paid off, but how much the property is currently worth that determines the amount of equity. For example, if you bought a property for R1.2 million and you still owe R800, 000, and currently the value of the property is R1.4 million. The difference of R600,000 is the equity.
How can IGrow Home Loans help you refinance your property?
Refinancing means you need to apply for a new home loan. Typically, they would approach different lenders and provide the necessary documentation to see who can give you the best offer.
IGrow Home Loans can help you apply for a refinanced loan. Our team has nearly 2 decades of experience in dealing with major South African banks and lenders, so we can negotiate favourable interest rates and loan terms.
The bank will evaluate your current credit score, income, and affordability, and do a proper valuation of the property you wish to refinance. View our blog post on how to better your creditworthiness: How to Improve Your Credit Score in South Africa.
Refinancing: benefits and risks
It is important to consider the advantages and the potential risks of property refinancing.
On the positive scale, refinancing can:
- Get you better home loan terms (e.g. improve your interest rates or home loan repayment structure)
- Give you access to equity for reinvestment purposes
- Lessen your monthly financial responsibilities
- Helps you consolidate other debts under one home loan, which is easier to repay
Refinancing does come with risks. If your property values decrease, you may end up owing more than the property is actually worth. Also, to consider is that some refinancing situations may incur penalty fees if you cancel your home loan earlier than planned. It is best to speak to an expert bond originator to work out the best scenario in your personal circumstances.
Jacques Fouché is a supporter of crafting a proper strategy when reinvesting in property. He supports a “strategic approach to refinancing—not just to reduce costs, but to reinvest in income-generating property assets that build lasting wealth.”
Property refinancing in South Africa: what is the market showing?
In comparing property refinancing in South Africa to global trends, certain patterns can be seen. In South Africa, we are experiencing more people refinancing as it is an appealing alternative for those seeking equity and liquidity.
Property investors are continuously seeking ways to access capital without having to sell their properties. Refinancing is a handy tool, especially now, with the rental market growth in urban areas near working hubs and student-rich areas near tertiary institutions.
South African banks have become more flexible regarding refinancing options. They favour customers with a sound home loan repayment record and a healthy credit score. This allows property investors to expand their portfolios more easily.
When and Why Does Refinancing Make Sense?
Refinancing is the answer if your property has experienced appreciation, and you want to grow your property portfolio. It’s also a wise move if your current home loan terms are not favourable or if you want to consolidate your debt.
You should look into refinancing if:
- Your property’s value has increased due to appreciation since you purchased it
- You have a strong credit score and history, and a stable monthly income
- You plan to utilise the equity from refinancing your property wisely (such as purchasing further buy-to-let properties)
- Interest rates appear more favourable with the new lender you plan to approach
Timing is important, too. Don’t rush the property refinancing process unless it makes financial sense. Refinancing should be a stepping stone for your next investment, not a short-term fix to a financial problem.
Conclusion
Property refinancing is not a perfect solution to all investment scenarios. However, when used strategically, it can be the trigger for leveraging property portfolio growth.
So if you are pondering, “Should I refinance my property?” first look at your property’s value, and see if refinancing it aligns with your financial goals and your long-term plans.
Book a consultation with an IGrow Property Investment Specialist today, and our team will help you figure out if property refinancing could be the key to unlocking your next prime property investment.
