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Refinancing rental property mortgage

Refinancing rental property mortgage

A lot of people take out mortgages on properties that they then use as rental investments because they do not have the liquidity to buy investment properties for cash. In that situation, the rent that comes in each month covers the cost of the mortgage payment, insurance, other fees, as well as providing a small reserve for maintenance and some profit as well. If you are a landlord in a situation like this, even though you are bringing in a monthly profit, there are times when you may need to access the equity in the home through a cash out refinance. You might need to make major repairs on the rental property (or your own primary residence). You might lose your job, or you might receive a diagnosis that means you can no longer work (or will be disabled for a period of time). In instances like this, taking out the equity in your rental home can be a real lifesaver.

Refinancing Your Rental Property Mortgage

Here’s how a cash out mortgage works in that situation. If the original purchase price of your investment property was $400,000, but you have $300,000 in equity, your remaining mortgage balance is $100,000. Let’s say you decide to take $100,000 of equity out in a loan. You might be wondering how much you can take out. LTV (loan to value) requirements are somewhat stricter with investment properties than they are with primary residences, so your limit might be 70 to 75 percent of LTV. So that $400,000 house would only yield $300,000 in loans at most, including your existing mortgage balance, so bear that in mind before making your application.

Because your balance will increase, you generally face one of two options: higher monthly payments going forward or a longer term for the loan. This is an important consideration, because if you are taking the loan to help with financial straits and agree to a higher monthly payments, make sure that you can handle the higher monthly obligation within your budget.

People pull cash from their equity for a variety of reasons. Some of these reasons are based on financial emergencies, but others are based on one time expenses that arise. Examples include taking the opportunity buy additional investment property, pay college tuition for one or more of their children, to purchase a vacation home or to take a luxurious cruise. Also, items like high levels of credit card debt, existing car loans that are at a higher rate of interest than the equity loan, and the chance to make other types of investments also motivate refinancing loans on rental properties.

If you currently own a rental property and have a great deal of equity in it, the cash that the equity could provide can make a significant difference in a number of areas. This isn’t something that you want to use as an ongoing source of funding, as taking out multiple equity loans makes closing costs add up and can place your ownership of the home at risk, if you can’t keep up with the larger payments.

However, if you think that a cash out refinance of your rental property makes sense, give one of our mortgage specialists at Amansad Financial a call today. We will go through your existing situation and arrive at a solution that is suited to your needs.

Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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