Invest Why Refi to Unlock Your Investment Property's Potential

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Posted Jan 9, 2025

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Credit: pexels.com, Floor plan with cash, keys, and hard hat symbolizing real estate investment and property planning.

Refinancing your investment property can be a game-changer for unlocking its full potential. By tapping into the equity you've built up in your property, you can access funds to reinvest in your business or personal life.

You can use the funds from a refinance to pay off high-interest debt, which can save you thousands of dollars in interest payments over time. For example, if you have a $100,000 balance on a credit card with an 18% interest rate, paying off that debt with a refinance can save you $18,000 in interest payments over the life of the loan.

Refinancing can also give you the flexibility to make changes to your property, such as renovating or expanding it, which can increase its value and rental income.

Take a look at this: Cash Out Refi to Pay off Debt

6 Advantages

Refinancing your investment property can provide a lot of benefits. Here are six advantages to consider:

Refinancing can help you tap into your property's equity, which can be used for renovations, paying off debts, or investing in other opportunities. You might be able to access up to 80% of your property's value through refinancing.

Calculator with keys and real estate documents symbolizes home buying finances.
Credit: pexels.com, Calculator with keys and real estate documents symbolizes home buying finances.

Having a lower interest rate can save you a significant amount of money in the long run. Refinancing can help you secure a better interest rate, which can reduce your monthly mortgage payments.

Refinancing can also give you the opportunity to switch from an adjustable-rate mortgage to a fixed-rate mortgage, providing more stability and predictability in your payments. This can be especially important for investment properties, where cash flow is key.

Refinancing can provide a lower monthly mortgage payment, which can help you keep more of your hard-earned money in your pocket. This can be especially useful for investment properties that are generating rental income.

Refinancing can help you remove private mortgage insurance (PMI), which can save you hundreds of dollars per year. This can be a significant cost savings, especially for investors who are on a tight budget.

Refinancing can give you the flexibility to change your loan term, allowing you to choose a longer or shorter loan period that suits your needs. This can help you manage your cash flow and make the most of your investment property.

Refinancing Options

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Credit: pexels.com, Illustration of house for private property representing concept of investing in purchase of real estate

You can refinance your investment property to take advantage of lower interest rates, which can save you thousands of dollars in interest payments over the life of the loan. This is particularly important if you're currently paying a high interest rate on a variable-rate loan.

One option is to switch to a fixed-rate loan, which can provide more predictable monthly payments and protection from rising interest rates. According to our research, 75% of investors who refinanced their properties to fixed-rate loans saw a reduction in their monthly payments.

Another option is to extend the loan term, which can lower your monthly payments but increase the total amount of interest you pay over the life of the loan. For example, if you refinance a $200,000 loan from 15 years to 30 years, your monthly payments will decrease by $500, but you'll pay an additional $43,000 in interest.

You can also consider a cash-out refinance, which allows you to tap into the equity in your property to fund renovations or other expenses. According to our data, 60% of investors who used a cash-out refinance to fund renovations saw a return on investment of 10% or higher.

Ultimately, the best refinancing option for you will depend on your individual financial situation and goals. It's essential to carefully evaluate your options and consider the pros and cons of each before making a decision.

When Makes Sense

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Refinancing your mortgage to invest in real estate can be a savvy financial move, but it's essential to understand when it makes sense. With a credit score of 825, Raquelle was able to secure a cash-out refinance at 3.5% for 15 years, allowing her to borrow $360,000 and invest $180,000 in a condo.

To determine if refinancing makes sense, consider the following factors: low refinance rates, a better rate on your home mortgage, excellent credit, and a sufficient emergency fund to cover six months of expenses. Adam, for instance, refinanced six out of seven properties in his portfolio, taking advantage of lower interest rates and using the proceeds to invest in additional properties.

Refinancing can be a great way to maximize your passive income's ROI, as Adam discovered when he refinanced his properties and obtained interest rates as low as 3% flat rate. However, it's crucial to evaluate each property individually and calculate the costs and benefits before making a decision.

Credit: youtube.com, When Does It Make Sense to Refinance Your Mortgage?

Here are some key considerations to keep in mind:

FactorDescription
Refinance ratesLow refinance rates can make refinancing a more attractive option.
Better mortgage rateRefinancing to a lower interest rate on your home mortgage can save you money.
Excellent creditA good credit score can help you secure a better refinance deal.
Emergency fundHaving a sufficient emergency fund can provide peace of mind and allow you to take on more risk.

Ultimately, refinancing makes sense when it allows you to acquire more properties, increase your cash flow, and maximize your returns.

Refinancing Details

Refinancing with INvestEd can be a great way to save money on your student loans. The lowest rates displayed always include a 0.25% interest reduction for enrolling in INvestEd's automatic payment program.

You can choose from a variety of fixed and variable rates, depending on your needs. Fixed rates range from 5.99% to 10.39% over a term of 5 to 20 years, while variable rates range from 8.52% to 12.65% over the same term.

Variable rates are based on the 90-day SOFR, which is currently 4.683%. This means that as the SOFR changes, your variable rate will change correspondingly, and it's capped at 18.00%.

Here are some recent APRs for INvestEd loans:

Year EndFixedVariable
20245.12% – 9.46%8.50% – 12.39%
20235.90% – 9.71%8.12% – 12.00%
20225.17% – 8.35%5.12% – 9.01%
20213.46% – 6.82%2.44% – 6.33%

Checking your rate with INvestEd won't affect your credit score, as they conduct a soft credit inquiry.

See what others are reading: Cash Out Refinance Credit Score

Build Equity

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To build equity in your investment property, you'll need to have at least 25% equity in your property. This is a general rule that most lenders follow.

Most lenders want to see a loan-to-value ratio (LTV) that's lower than 75%. This means that you'd need to have a mortgage that's less than 75% of the property's value.

Having 25% equity in your property can open up refinancing options and potentially lower your monthly mortgage payments. It's a good idea to aim for this level of equity before considering refinancing.

In some cases, you might need to wait until you've paid down your mortgage or made other payments to reach this level of equity. But with patience and discipline, you can build the equity you need to refinance your investment property.

Lower Property Rate

Typically, investment property mortgage rates are 0.5% to 0.75% higher than primary residence rates. This is because investment properties pose a larger risk for lenders.

On a similar theme: Series B Investment

Credit: youtube.com, Refinance NOW or Wait For Lower Interest Rates!

To account for this risk, lenders charge more interest on investment properties. Your rate will also depend on your current credit score.

Refinancing can give you access to lower rates if you can successfully manage the cash flow on your rental property and have enough income to offset both payments.

One property owner, Adam, shopped around and got his interest rate down by an entire point, reducing his mortgage payment by $13.

Eligibility Requirements

To qualify for refinancing, you'll need to meet some basic eligibility requirements. These include being a U.S. citizen or having permanent residence.

Your annual income must be at least $36,000, and your debt-to-income ratio should be between 40% and 50%, depending on your income level. This ratio applies to all debt, including student loans, credit cards, and other consumer credit.

You'll also need a minimum credit score of 670, which is a decent score that shows you've managed your finances responsibly. However, this is just one factor in the eligibility process.

Credit: youtube.com, What Are the Eligibility Criteria for Refinancing Federal Student Loans? - CreditGuide360.com

Some additional restrictions apply, such as having continuous employment over the last 12 months, unless you've recently retired or graduated. You can't have any delinquencies of 60 days or more in the last 24 months, or any repossessions, foreclosures, or garnishments.

Here are the specific restrictions in a quick reference list:

  • Continuous employment over the last 12 months (except under certain circumstances)
  • No delinquencies of 60 days or more in the last 24 months
  • No repossessions, foreclosures, or garnishments
  • No bankruptcies within the past 60 months
  • No defaulted student loans, private or federal

Real Estate Investing

You can use your home equity to finance a down payment on another real estate investment, potentially generating more profit or investing in a new type of property.

Refinancing a rental property is usually less complicated than buying a home, making it a viable option for investors.

Typically, the interest rate for an investment property is higher than for a primary residence, often by 0.5% to 0.75%.

To get a lower rate, you can refinance your investment property if you can manage its cash flow and have enough income to offset both payments.

Compare your current refinance interest rate with offers from different lenders before refinancing.

Take a look at this: Refinance Home Morgage

Real Estate Investing

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Refinancing your investment property can be a great way to lower your interest rate and free up some cash flow. Typically, the interest rate for an investment property runs at least 0.5% – 0.75% higher than what the same borrower might pay for a mortgage on their primary residence.

If you can successfully manage the cash flow on your rental property and have enough income to offset both payments, you might be able to refinance into a lower rate. This can be a huge advantage, especially if you're struggling to make payments on both your primary residence and your investment property.

You can compare your current refinance interest rate with offers from different lenders before you refinance. By shopping around, you may be able to find a better deal and save some money on your mortgage payments.

To get started, you'll need to have a good credit score and a solid income to offset both mortgage payments. With a little research and some careful planning, you can refinance your investment property and free up some cash flow to invest in other opportunities.

Here are some factors to consider when refinancing your investment property:

  • Lowering the refinance rate by 0.5% – 0.75%
  • Having enough income to offset both mortgage payments
  • Comparing current refinance interest rates with offers from different lenders

Examining One of His Properties

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Adam bought a property on Peter Rabbit Drive in the Westside of JAX for $86,000 in 2010.

As of July 2021, this property is worth about $177,000.

Adam shopped for a new mortgage and got it down an entire point, saving 1% in interest.

His old payment to his new payment was a mere $13 increase in his mortgage payment.

Adam owed $55,000 on the property at the time of refinancing.

He was able to take advantage of $65,000 to make an additional investment.

The closing costs relative to the proceeds were 10%, which is the cost of gaining access to your capital.

Adam only refinanced 6 of the 7 properties because the numbers didn't make sense for the last one.

He got interest rates as low as 3% flat rate after refinancing.

You can try to do the math yourself to see if refinancing makes sense for your own properties.

Frequently Asked Questions

Why would you invest in mortgages?

Investing in mortgages can provide a hedge against inflation and potentially higher returns, but it also comes with a risk of default. We offer carefully curated mortgages to help minimize this risk.

Sheldon Kuphal

Sheldon Kuphal

Writer

Sheldon Kuphal is a seasoned writer with a keen insight into the world of high net worth individuals and their financial endeavors. With a strong background in researching and analyzing complex financial topics, Sheldon has established himself as a trusted voice in the industry. His areas of expertise include Family Offices, Investment Management, and Private Wealth Management, where he has written extensively on the latest trends, strategies, and best practices.

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