Some Investors are Refinancing. Should You?
The current market, coupled with rising interest rates, is leading homeowners and some investors to refinance their properties. Should you?
Why should investors refinance now? Does it make financial sense to refinance? More importantly, are there any refinance loan products for small investors?
Interest Rates
Mortgage bankers have been warning of interest rate increases for years. It took awhile for the rates to rise after the recovery. The slow rise in rates did not incentivize owners and investors to seek new loans. We may not see a massive lift in rates right immediately, but the higher interest rates are approaching. It’s just a part of regular cyclical housing and finance markets.
Many are unaware of the impact mortgage rates have on purchasing power or monthly payments. For a median-priced home in the average market, a couple of percentage points increase can add more than six figures over the life of the loan.
I think it is safe to say, most homeowners are O.K. with saving $100,000, especially when it can be compounded in their favor over decades. Even saving $200 to $300 a month, compounded over 30 years could add around a quarter of a million dollars to individual’s nest eggs at a modest 5% return. Multiply that for investors by the number of properties they own and are acquiring.
Both monthly cash flow and total returns for buy-and-hold real estate investors will see increases. It is important to be diligent with your numbers. How much will the closing costs be? Repair cost? Vacancy cost?
Even those that don’t desire more cash flow or higher rates from their investment properties may later regret not creating the extra cushion.
Contemplating a refinance doesn’t only apply to those that currently have mortgages. There are literally millions of rental properties in the U.S. which are being held free of loan debt. There really isn’t a better time for real estate investors to expand their portfolios. Cashing them out with a loan and using that for down payments on additional properties has the potential for massive wealth building.
What can you do?
While a lot of noise has been made about tough underwriting in recent years, there are now many new mortgage lenders and loan programs hitting the market to help rental property investors with portfolios of single-family homes.
Shop around, and you may find incredibly attractive long-term interest rates on non-recourse loans from lenders that actually want to work with investors.
Blessed investing!