There are a variety of reasons that homeowners refinance their houses. After what we experienced last year, you could find extremely low-interest rates for loans. The Federal Reserve wanted to encourage spending in the economy to counterbalance the negative effects of COVID-19. Many people wanted to take advantage of those low rates and refinance the house they own.
There are other reasons that people refinance a home. From the perspective of a real estate investor that purchases homes often, they refinance their properties to free up additional cash and enable more home purchases. Regardless of your end goal, we will review the benefits of refinancing the mortgage of your home to help you determine if it makes sense to do take action and get this done for yourself.
1. Lower Interest Rate
As mentioned above, one of the biggest benefits of refinancing your current mortgage is adjusting the current terms on your loan. For example, you may have the opportunity to lock in a lower interest rate than the current one attached to your loan. This is what we saw many borrowers do over the past 18 months.
Interest rates dropped dramatically, which inspired many borrowers to restructure their loans. If you have the chance to do this, it could be worth it. Depending on the new terms that you set with your lender, the length of your loan could extend back to a 30-year agreement. Even though it will now take longer to pay off the total loan, your monthly payment is likely much smaller.
Of course, everyone’s financial situation is different. You must work with a professional lender to determine if this is the right move for you. If your monthly payment can drop by a few hundred dollars, it can remove a huge amount of financial stress from you and your family. Consider refinancing your loan if there’s an opportunity to greatly decrease the current interest rate on your mortgage.
2. Making More Cash Available
Whether you are a traditional homeowner, or a real estate investor, there’s a chance that refinancing your house to take cash out will make sense to do at some point. Typically, this strategy is used more by investors. If they purchase a home that they now have equity in, they can pull a percentage of that cash out to then purchase another property.
Investors will often renovate a property in order to add this equity into a property they own. Once the renovations are completed, a lender can order an appraisal to see how much the new value of the house is. From there, the lender will restructure their current mortgage and give them cash. You must have equity in your property to do this particular type of refinancing.
If someone has a vision of scaling up their portfolio and buying as many properties as they can, this strategy can help decrease the time in between buying houses. Especially if they don’t have millions of dollars to spend on properties, using existing houses as leverage can help them increase their assets quickly.
Conclusion
Refinancing your mortgage can be a useful strategy to help you save money, or get you to the next step of your investing career. Make sure to consult with a professional lender who has experience working with people in real estate. They can instruct you on the best options based on your current financial position and goals.
Alex Capozzolo is a partner of Henry Buys Homes, a real estate company in Jacksonville, FL. He has been writing for the real estate industry for several years. Henry is a licensed agent that operates in the Florida market.