When you’re a real estate investor, sometimes you don’t make as much profit from a new investment property as you would like.
Your mortgage payments might be too high, and your loan term too long. Maybe you pay too much insurance, or maybe you need to fix something expensive within the property that you don’t have the cash on hand for.
What can you do about it? You can get an investment property mortgage refinance.
What is a mortgage refinance?
In short, a mortgage refinance is a loan you use to pay off your previous mortgage. To get a mortgage refinance, just as you did when you got your original mortgage, you have to qualify for the loan, file an application, go through underwriting, and go to closing.
Mortgage refinancing has many benefits, most notably that it allows you to renegotiate your mortgage terms. These include the loan term and interest nature (adjustable rate or fixed rate). It also gives you access to the equity you have in a property.
Types of mortgage refinance
There are three types of mortgage refinance:
Cash-out refinance: Here, you borrow more money than you owe on your original mortgage. Since you only owe the balance of your original mortgage, the lender pays you the difference in cash; in other words, cash-out mortgage refinances give you access to your equity in a property.
Cash-in refinance: You must have the original mortgage paid down below a certain loan-to-value ratio. Cash-in refinances are popular for lowering mortgage rates, shortening loan terms, and canceling mortgage insurance premiums.
Rate-and-term refinance: Also called no-cash-out refinances, these are used to change mortgage rates and terms. Your closing costs will be added to the loan balance, saving you money upfront.
Why should you get a mortgage refinance for your investment property?
As a real estate investor, your primary concern is making your investment property as profitable as possible, and getting a mortgage refinance is one of the easiest ways you can do that.
A refinance can help you pay less in mortgage premiums and possibly cancel your mortgage insurance premiums, if you pay them. In addition, it can shorten your loan term and give you access to the equity in the property to help pay for improvement projects and other costly fixes.
Pro tip! If you own a rental or a commercial property, getting a mortgage refinance is particularly advantageous since your property pays its own mortgage!
How do you refinance your mortgage on an investment property?
You’re going to go through much of the same process you went through when you got your original mortgage.
Lenders will need to see some information from you. Prepare to hand over the following:
- Proof of income, including personal income and rental income
- Proof of assets
- Proof of individual ownership
- A home appraisal
- A record of debts and other liabilities
The bottom line
There’s little downside to getting an investment property mortgage refinance, which is one of the best ways to maximize profits from a real estate investment early on. If you’re a new real estate investor stumbling around the internet to learn more, check out our comprehensive guide to investing in real estate.
