To Refinance Or Not?
What an amazing time to be a Real Estate Investor! Every day, I am inspired by the projects and deals that you are working on in the Lady Landlords Facebook group! It might be a tough market out there but there are deals to be made and I am so proud to see what creative ways that the women in the group have been able to increase their monthly cash flow and overall wealth through making it happen!
And there is still time to get in the game!
For many of us, the Real Estate market is in unprecedented times for our investment career. An absolute scramble for properties at all time high prices with low inventory. And, we also have historically low interest rates....
So...how to we capitalize on this?
Well, now might be a good time to refinance. Whether your primary residence or a rental property, it is a great time to have a chat with your preferred lender. Refinancing may allow you to find the money you need to fund that next deal, increase monthly cash flow, or catapult your way into into creating leverage to speedily grow your entire portfolio.
Here are a few quick tips for deciding if refinancing may be right for you:
1. Lower your Interest Rate
This option has the potential to save you thousand of dollars over the course of your loan. Years ago, interest rates were 6, 7, 8% + and no one batted an eye at it. It was just the cost of homeownership. But now, rates for borrowing money are lower than they ever have been before. Why not take advantage of this? By simply having a conversation with your mortgage broker, you can possibly lower your monthly payment which could make a huge difference in your cost of living. Imagine what you could do with a few hundred extra dollars a month? But, make sure to check for fees. When you refinance you do need to pay closing costs again so calculate your breakeven point so that refinancing to a lower payment will be worth it over the course of the loan.
2. Remove PMI
If you put down less than 20% when you originally bought your property, there is a good chance that you are paying possibly hundreds of dollars a month in mortgage insurance. And that is okay. If that was what you needed to do to buy a property and get the ball rolling, there is nothing wrong with PMI. Sometimes we have to pay for that cost of entry and if paying PMI was the way to get there, then no problem...especially if it is still a cash flowing property, but now might be the time to get that removed! If you have 20+% equity in the house from either appreciation or paying down the mortgage for some time, this may be a great option to put money back in your pocket every month. Remember, education is a part of this! Add our Lady Landlords Podcast to your daily routine!
3. Cash out that Equity!
You might have heard of a cash-out refinance and wondered if that is the same as a refi. Short answer is no. You can absolutely just refinance your home which resets your interest and terms, but a cash out refi give you one extra perk....CASH! Yup, that's right! If you have equity in your current property, even if your primary home, you can get the money out of the property to help pay for another down payment. There is a magic number that each lender will allow you to take out based on the equity that you have in your house. That is called LTV which stands for Loan to Value. LTV is calculated by the mortgage amount divided by the appraised mortgage value. For example, if you buy a home for $100,000 (its appraised value) and make a $10,000 down payment, you will borrow $90,000. This results in an LTV ratio of 90% ($90,000/100,000). When looking to do a cash out refi, be sure to ask what LTV the lender will go up to. Most banks will require that you retain at least 20% equity on the property. Remember that while cashing out, your mortgage payment may actually go up, so you want to calculate that in when looking for your next deal and analyzing its cash flow abilities!
Want to talk through these options for your situation specifically? Schedule a chat with me to get the help you need here!
Even better if you can get two or three of these bullet points accomplished in the same refi! 😉
Happy Deal Finding!