subject: 5 Tips to Optimize Your Income Property Refinance [print this page] 5 Tips to Optimize Your Income Property Refinance
Refinancing your rental property can be beneficial in many ways. The historically low mortgage rates that are being experienced today in many cases will allow you to refinance and substantially reduce your monthly payments. Refinancing can have other benefits as well. For example, if you have some equity you can do a cash-out refinance and use part of the money for property improvements, which will allow you to raise the rent and generate more income from the property. Here are a few best practices when refinancing a rental property:1) Understand that the new lender will pay off the existing loan on the property when you refinance. This allows you to secure a new mortgage with a lower rate. For example, if you started out paying 7% interest on your loan, you may be able to refinance into a loan with a 4.5% interest rate. This will reduce the amount of your monthly payments as well as act cumulatively to reduce the total amount of interest you will have to pay over the life of the loan. As an added bonus, your tenants will still be paying the same amount of rent, so it's more money in your pocket. 2) Another way of refinancing that will allow you to end up with money in your pocket is to borrow more than what you owe on the old mortgage. For example, if the current mortgage balance is $100,000, and your property is valued at $200,000, you have $100,000 in equity to play with. Lenders usually require you to retain at least 20% equity in the property, so you could do a cash-out refinance of $160,000 ($100,000 to pay off and refinance the old mortgage, and $60,000 cash-back). 3) Another extremely important tip for refinancing is to shop around. The interest rates on mortgages are at an all-time low. Find the lender that will provide the lowest interest rate and the best terms for your refinance. Do not take the first loan offered to you simply because it is lower than the one you are currently paying. Do your homework and find the best deal before you commit to a refinance. Also, don't forget to factor in the closing costs.4) Use your skills to negotiate rates. Lenders are competitive. If you are negotiating with two lenders to see which one can provide the best rate, a little friendly competition between the two can add up to a lower interest rate for you. Do not hesitate to let both lenders know you are considering another lender. This will add to the competition. The key to success when negotiating rates is patience.5) Consider buying down the rate you will be charged. This can lower the interest rate over the life of the loan. Many people choose to pay points and lower the interest rate even though it can cost a few thousand at closing. The savings that you will realize over the life of the loan can end up being tens of thousands of dollars.In conclusion, I hope you find these tips to be useful and informative. Now is a great time to refinance a mortgage. Just do your homework, and you should be able to negotiate an excellent deal.
