Refinancing a Rental Property

Top Three Advantages of Refinancing a Rental Property

If you are a homeowner, you may already know it’s possible to refinance a mortgage for your primary residence. However, did you know that you could also try refinancing a rental property? You can make your loan much more manageable by refinancing your investment property. It can also leave you enough cash to improve your tenant’s space. There are several such advantages of refinancing your investment property. Here are a few reasons why all commercial property owners must consider refinancing their investment properties. 

Low Interest Rates

You will be surprised by the difference between a primary property and an investment property’s interest rate. Ideally, the interest on an investment property tends to run at least 0.5% to 0.75% higher than what you would pay for a mortgage on your primary residence. Nevertheless, this interest rate can be even higher depending on your situation. It would help if you remembered that investment properties often represent a significant risk for lenders. All money lenders charge a little more interest on investment real estate to keep this risk in check. 

Online lenders and banks understand that if you ever run into a financial hiccup and could only afford one mortgage payment, you will always choose your home. Since two mortgage payments can be a little hectic and unsustainable, you might want to look for a lower rate by refinancing a rental property. Refinancing will give you access to significantly lower rates if you prove that you are successfully managing your investment property. Our Real Estate Funding Solutions team suggests you compare your interest rate with offers from several lenders before you refinance. 

Revised Mortgage Terms 

Are you looking for a way to change your investment real estate loan terms so you can own your investment property sooner? You will have to pay much more money each month if you shorten your loan term, but you acquire minimum interest over time. You could also consider lengthening your overall loan term if you have issues keeping up with your monthly payments and premiums. You will have to pay less money each month by increasing your mortgage term. 

However, since you will spread out your total payment, you will accrue much more interest over time. Refinancing a rental property by changing the total length of your mortgage may or may not change your overall interest rate. You could also refinance from an adjustable rate to a fixed-rate mortgage. Most investment real estate owners tend to shift from an adjustable-rate interest to a fixed-rate interest, so their rates don’t change every month. Doing this gives you a much more consistent price from monthly expenses.  

Cash-out Equity  

As long as you have some balance left on your mortgage, you technically don’t own your property free and clear. All lenders keep a lien on a property until the borrower pays back the mortgage. A lien means that the lender can seize your property if you cannot pay back what you borrowed. This is one of the few things that stay the same, whether for your personal property or investment real estate. 

As you make monthly payments and pay your principal, more and more percentage of the property becomes yours. Home equity means the dollar amount of ownership you have in real estate. Home equity includes the money you put down on the property, along with any principal you have already paid off. However, you must understand that paying interest does not build equity.  

For instance, let’s assume you take a mortgage for $200,000 with a total down payment of $40,000 (20%). Over time, you pay another $40,000 on your principal, and you have only $120,000 left on your loan. In this case, you will have $80,000 worth of home equity that you can always tap into. As the property owner, you can always choose to borrow against the equity you possess in your property and access the cash any time using cash-out refinance or a home equity loan. You can use this money to pay off credit card debts, fund repairs, or pay for anything else you want.  

All investors are looking for better investment properties. If you want, you can use this money to finance a new down payment for a real estate investment you need to snatch up quickly. As your property grows in value, your equity will also increase and go beyond what you pay on your principal. However, it would be best to speak with a professional real estate agent to find out what is best for you. Looking for professionals to help guide your way to success? We can help! 

Real Estate Funding Solutions Is Here For All Your Real Estate Needs. 

Do you want to find out how you can improve your exit strategy? Or have any other questions related to real estate financing? If yes, our team from Real Estate Funding Solutions can help! Our experts have years of training and experience in real estate and can help you understand the best route for long-term profitability. Call us today at 855-913-8637, and our real estate experts will answer all your questions. 

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