Buying a house or rental property is one of the best investments you can make. This approach is especially successful if you’re looking at property in thriving communities in Texas, Arizona, or Colorado. Finding the right property is a great start for real estate investors. It’s also important to get the right loan.
Luckily, you don’t have to get the perfect loan right away. Circumstances change over time, and the loan that works for you now might not be the loan that works for you later. It’s also possible that you can get a better loan today than you could when you bought a property. In either case, it might be time to refinance the mortgage.
What Does It Mean To Refinance A House?
What exactly does it mean when people refinance mortgage loans? This is your opportunity to replace your mortgage. It makes sense when your existing mortgage just isn’t fitting your needs anymore or if you have a chance to get yourself into a better loan.
There are some costs associated with refinancing a mortgage, though. In other words, it’s not something you want to do all the time. The decision to refinance a mortgage should be a strategic one, and you can get it right by knowing when it makes sense to refinance your mortgage.
4 Reasons To Refinance Your Mortgage
Refinancing mortgage loans makes sense when you do it for the right reason. Every situation is different, and there’s no one-size-fits-all answer to the question of “when does it make sense to refinance a mortgage?” Still, we find that the most successful real estate investors normally refinance mortgages for one of four main reasons.
1. Change Your Loan Term
Longer loans mean more payments and more interest. Depending on your situation, it might make sense to explore a different loan with a shorter term. People often look into refinancing mortgages to change 30-year terms to 15-year terms. Your monthly payment will get higher because there are fewer payments, but you’ll pay less interest overall.
On the other side, people choose to refinance mortgage loans to go with longer terms. This means more interest over time but lower monthly payments. This kind of move makes sense if you want to reduce your monthly payment and free up money for other projects.
2. Lower Your Interest Rate
If you keep up with financial news, you already know that interest rates are always changing. If you got a loan when interest rates weren’t especially favorable, you might want to refinance when the rates go down. Getting a better home loan interest rate will lower your payments and ensure you spend less on interest throughout the life of your loan.
In some cases, you might be able to get a better interest rate even if national rates haven’t dropped much. For example, you might have improved your credit or made the loan less risky. When there’s less risk to the lender, they can offer you a more favorable loan.
You might also be able to get a lower interest rate if you’ve formed a good relationship with the lender. This is one of the top reasons people choose private money lenders like Capital Fund I. We’re not tied to national interest rates, which gives us more discretion when we provide loans. Investors who work with us enough to form trusting relationships can get loans with great interest rates.
3. Change Your Loan Type
Because markets like Scottsdale, Denver, and Dallas are so competitive, you have to move fast to secure the top properties. Getting a traditional loan can take a long time, and sometimes it’s hard to get this kind of loan for an investment property. That’s where hard money loans can save the day, but it’s important to know how hard money interest rates differ from traditional loan interest rates.
A hard money loan might be your best bet if you want to close on a property quickly and add it to your real estate investment portfolio. When you apply for a hard money loan, though, it’s normally because it’s the best solution for the immediate term. Once you secure your property or complete your project, you can explore other loan types by refinancing the mortgage.
4. Cash Out Your Equity
A cash-out mortgage refinance is a powerful tool for real estate investors. When you refinance mortgage loans in this way, you’re borrowing more money from the lender than you actually owe on the home. The difference between what you borrow and what you owe goes straight into your bank account.
You can do this when the value of your home has increased compared to what you owe on it. It’s a good way to get a quick cash infusion. You can use that as spending money for home improvement at your property to increase the value of your investment even more.
You might also choose to use the money from your cash-out refinance for other projects. In many cases, cash-out mortgage refinancing is used as a way to consolidate debt or improve your loans. It helps to weigh the tax and interest implications against what a cash-out loan will allow you to accomplish.
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