A Step-by-Step Guide on How to Refinance an Investment Property
Since interest rates (IRs) are hitting a record low since the COVID-19 pandemic started, a lot of investors are wondering if they should remortgage their investment properties. We have created a simple guide on how to refinance an investment property. Make sure to finish reading this article to understand how the process functions from start to finish.
Why should investors remortgage their loans?
Before people can think about how to remortgage their loans, they need to consider why investors want to do it in the first place. There are at least three reasons why people might want to refinance their loans. We have listed them to give individuals a closer look at why they might consider talking to financial institutions about refinancing their mortgages.
To help increase their cash flow
As a business investor, people should know, having a good and positive cash flow is very important. One of the reasons why business property owners usually decide to remortgage is to get more cash out of their properties. Let us put it this way, if individuals have the ability to remortgage into new loans with lower IR, they can lower their monthly payments and increase the amount of rental income from their property generates every month.
To know more about cash-out remortgaging, click here for details.
To change the terms of their mortgages
Another reason why investors may want to do this process is to change the terms of their loans. Maybe they want to move from a thirty-year mortgage term to a fifteen-year term. Alternatively, there is a good chance that they have adjustable rates now, and they want the predictability and stability of fixed payments. Maybe they have paid down their balance and want to get rid of their insurance requirements. Whatever the reason, taking out new loans allows people to choose the terms that will work best for them.
To leverage equities in properties
Lastly, with cash out remortgaging, investors can borrow against the equity in their property to finance big expenses. With cash-out refinances, investors borrow more funds than they owe on their property and receive differences to leverage the equity they build up in the property to fund future ventures like purchasing another house for future investments or doing significant renovations.
When should investors refinance their investment properties or houses?
People need to keep in mind that this process does not always make a lot of sense. But if people have been thinking or remortgaging their current loan on rental properties, listed below are some signs that make sense to do so.
When investors can greatly minimize their interest rate
First, refinancing investment properties usually only makes a lot of sense if they have the chance to secure a lower interest rate. The good news is the rates of remortgaging investment properties are currently at a record low, so there is a good chance that they could stand to save. But in general, they should try to lower their IR by at least a full point when they remortgage their rental properties. Otherwise, it may not be worth paying the closing amount to take out new loans.
When the financial situation has changed
Investors also tend to remortgage when their financial circumstances have changed significantly. For instance, if an individual is a much more qualified borrower now compared to when they first took out their loan, there is a good chance that they will qualify for a better investment property loan rate. Similarly, if they make more funds compared to before, it may cause a lot of sense to shorten the mortgage term so they can save a lot on the total amount of interest they are paying overall.
On the other hand, if investors’ current payment is too much for them to handle since they have taken on more loans or their monthly income level has changed, they could also consider remortgaging into new loans that allow them to pay off their current credit balance over a long period. But be cautious that if the lending firm perceives them as a risky borrower, investors may get a higher IR.
When investors need to finance big expenses
Again, with a cash-out remortgage, people can pull the equity of their properties to finance huge expenses. Before they do so, they need to make a lot of research about their financing options. People can also look into what rate they would get on a house equity loan or HELOC (home equity line of credit) before deciding whether it makes a lot of sense to remortgage their existing rental property credit.
How to remortgage a credit on investment propertie
If individuals have decided a remortgaging credit is the best way to go, the next thing they need to do is to learn how to remortgage a credit on their investment property.
Just like when people took out their current loan, they will need to provide their credit officer with tons of paperwork, so it can help to get these documents organized in advance. While the exact documents needed for rental property credits can differ depending on the lending firm or financial institution, in general, individuals will need to provide the following:
Two years of tax returns and/or W-20s
Current pay stubs with year-to-date income listed
Current statements for assets like retirement accounts or bank accounts
Copies of title insurance policies
Proof of insurance
Shop around for a reasonable rate
Investment property refinance rates people will be given will differ according to each financial institution’s fee structure and their assessment of the individual’s creditworthiness. Hence, people need to get at least three to five quotes from various financial institutions before they decide where to apply for their new credit. When gathering quotes, people should try to give the same info to each lending firm. That way, once they have the quotes, they will be able to make apple-to-apple comparisons between quotes
Apply for a refinance credit
Once you have settled on the billigste refinansiering firm that perfectly fits you, the next thing you need to do is to apply for a refinance credit. Usually, this process involves answering a couple of questions about your current financial circumstances, consenting to credit checks, as well as handling your financial documents. At the same time, there is a good chance that financial institutions will ask you to lock in your IR.
Go through underwriting processes
As soon as the lending officer has all the documents, they will provide files to the underwriter. Underwriters are responsible for vetting financial info for any red flags. Not only that, it is their task to make sure the property is worthy enough to justify loan balances. To that end, underwriters will likely order appraisals on the property as part of their process.
Close on your home mortgages
Provided that your financial info checks out and you are approved for refinancing your property loan, the last step is to go to closing. At this step, people will sign all the essential documents. Depending on how the credit is structured, individuals may also need to pay closing fees. But once that is done, and the credit is funded, individuals will be good to go.
The big question people need to ask is, “Should I remortgage my loan?” As a business owner or investor, it makes a lot of sense to let the math do show you whether it is the best thing to do right now. So, if you think it may be best for you, talk to a few financial institutions like lending firms, credit unions, or banks and get quotes.
Once individuals have a better understanding of their interest rate, they will be able to see how their cash flow is impacted, as well as calculate their break-even point. Armed with this information, individuals should be able to make an informed decision of whether remortgaging right now is the perfect choice for property owners.