When Does Refinancing Investment Property Loans Make Sense?

Posted on: November 12, 2011

Categories: Other Articles

Author: lbuen

You may have seen ads or brochures enticing property investors to refinance their investment property loans; and you are turning over this move in your mind. Your personal and financial landscape may have changed over the years since you obtained the mortgage loan, or perhaps, you have some urgent motivations for contemplating refinancing your loan, or you are simply intrigued if refinancing can benefit you. Why not give your current investment property loan a checkup and find out if there is a mortgage product in the market that better satisfies your requirements than your existing loan. In fact, re-evaluating your loan every two years or so to find out if refinancing to a product that better fulfills your needs is recommended by mortgage brokers. So what could be the reasons for you to refinance your investment property loan?

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Investment Property Loans Image by nataliej via Flickr

Why Refinance Investment Property Loans

Refinance Investment Property Loans to Enhance Overall Investment Outcome

If things are doing great for you and you see your investment property worth growing steadily, you can tap the equity for more investment. You can refinance your investment property loan to obtain funds to pay for the down payment for the acquisition of new investment property, or boost the value of your current investment property. When bringing your property up to code, make sure to put a ceiling to the rehab and focus on improvements that tallies with your overall investment strategy. Minor a interior wall painting job or re-patching the lawn could boost the rental potential of the property without the need to spend too much for it.

Refinance Investment Property Loans to Beef Up Cash Flow

Better loan terms can boost cash flow. whether you are shifting from a fixed interest rate to a variable rate, or vice versa; transferring from a “no extras” loan to a loan with additional flexible features, or vice versa; or you simply want to shorten or extend your loan period, it is essential that you study the effects of the shift on your cash flow.

Refinance Investment Property Loans to Raise Funds

You may have a need for extra funds to cover for a new car, school fees, or to pay for some of your credit card debt, then a refinance may be the answer to any of these. Make sure to weigh these projects against your long-term investment goals and what is more important to you.

Things to Consider When Refinancing Investment Property Loans 

When you are shopping around for refinance loans, look for a new loan that offers you a better outcome than your existing loan. The following are important factors to consider when comparing loans:

Cost of Loan

Over the years, your credit score may have improved, thus, you may qualify for a better interest rate or better terms; or you may have noticed loans with lower costs recently offered. There is no harm in shopping around and comparing the amount of monthly repayments and the total amount of interest paid for the entire period of the loan; you may even stumble upon a better deal.

Features of the Loan

Besides the cost of loan itself, you also have to weigh loan features that can benefit you that are not offered in your existing loans. Decide if these features are worth paying for through higher interest rates. Loans with lower interest rates may be cheaper, but more often they do not include more flexible features, such as that which allows you to save money if you repay your loan more quickly. Of course, shift to this type of loan only when you can afford to do so. The home loan finance market has been dynamic, constantly coming up with new products or new features, so go on and explore new options even if you feel that your needs have not changed much yet.

Costs of Refinancing

The cost of the loan is not the only cost you have to watch. You may be tempted to shift to another loan with cheaper rates, but before you do, first find out the costs involved in transferring from your existing loan and compare this to the cost of sticking with the old loan. Refinancing may cost you some hundred dollars to establish the new loan and you may have to pay for stamp duties or other taxes. You have to be aware if your current lender will charge you dearly for repaying your current loan earlier as you refinance, and compare this charge with the savings you can potentially get from the new loan. Moreover, if you are planning to refinance again after a few years, choose a new loan that does not exact an exorbitant fee for early repayment.

In a nutshell, refinancing investment property loans makes sense only when it can lead to a better investment outcome than your existing loan and if the new loan fits your overall investment strategy.

 When Does Refinancing Investment Property Loans Make Sense?
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