It is time to refinance investment property. Refinance investment property refers to another mortgage on your investment property to replace an existing mortgage on the same.

Interest in investment property will continue to be high as long as interest rates remain low. Investing in property, at present, is a wise financial move and there is a variety of investment loans to help you refinance your investment property.

If you do not already possess an investment property, you can start by investing in a property. The asking rate for down payment is as low as 5% to 10%. It does not matter to many lenders if you are self employed, or are unable to verify your income. With no income verification, you can avail of 90% loan, but the rate of interest may be high, With around 20% down payment, you are in a better position to strike a low interest deal. 

The interest you pay can be deducted against the income you receive on your investment property. Your tax consultant can advise you on how you can further reduce your income and tax burden without affecting your positive cash flow. 

There is no limit to the number of rental investment properties you can own, though some lenders will hold only a maximum of four mortgages from you. Once you have a mortgage on your investment property, you can immediately go for a refinance on that investment property, which can be available at lower rates of interest.

Why Refinance Investment Property 

There are many reasons for this. One major reason why borrowers decide to refinance investment property is to reduce interest costs with a lower interest rate. The other reasons could be:

•  Increasing the loan term to reduce monthly payments
•  Switching over from an adjustable rate mortgage to a fixed rate loan
•  Cash-out refinance – liquidating equity into cash

Refinancing investment property has the same costs as those involved in a mortgage. Loan application fees, loan origination fees, appraisal fees, etc are taken into consideration. Although these all add up towards the costs, however, a refinance of investment property, especially with a lower rate of interest, has a potential to save more money. 

This is the major factor - of saving on interest that will be more than the total cost of refinancing and prepayment penalties – that leads to a decision to refinance investment property. Certain mortgage loans have a discouraging prepayment penalty clause, especially in the case of fixed interest rate mortgages, to dissuade borrowers from terminating their mortgages early to opt for the low interest refinance of investment property. 

As an investor in investment property, you will need to calculate the total cost of refinancing your investment property, to decide whether it is the best option for you. The thumb rule suggested by financial experts is to look for a minimum two-percentage point reduction in your mortgage before refinancing. You may be able to get an estimate on your savings on refinancing through online mortgage calculators, but these do not take into account all the costs that a mortgage refinancing incurs.

Cash-out mortgage refinance of investment is to liquidate your equity, to probably remodel, or redecorate, your investment property. You can also use the cash-out mortgage refinance for your credit card debt elimination, to cover other large expenses, for debt consolidation, or for similar major expense. Before finally deciding on it, it is best advisable to consult with your financial advisor. 

A cash-out mortgage refinance of investment property involves refinancing of an existing mortgage with a higher amount. Prior to a refinance of investment property through a cash-out mortgage refinance, it is advisable to check if your lender has set any stipulations and conditions, such as: 

• Loan limits
• Amount of equity that can be cashed-out
• Eligibility and qualification requirements

The Federal Housing Authority has set several such requirements for cash-out mortgage refinance of investment properties. 

There are other refinancing options available besides cash-out mortgage refinancing. Looking to refinance investment property, you can explore other options, such as equity loans, or equity line of credit, among others. These refinancing options, generally, have a more flexible repayment options. 

In the current investment climate, it is not a bad idea to refinance your investment property.

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