When To Refinance Investment Property And Achieve Your Goals

You may like to refinance investment property for any number of reasons. Lower interest rates are attractive, and you might consider refinancing in order to increase your cash flow by lowering monthly payments, or you may like to make improvements to your property and increase its worth.

Those are only a few of the reasons to refinance your property but there are some facts that you need to consider in order to actually achieve a more positive cash flow and not spend more than is saved in interest rates and fees.

Know Your Options

If you believe you should refinance your property in order to take advantage of lower interest rates that are currently prevalent, and increase your cash flow or to reinvest and improve your investment property to increase the value of it, you should think about your options carefully and understand the requirements and obvious and sometimes, hidden costs for each of them.

Fixed Rate Loans - Loans with a locked in interest rate that doesn't change over the life of the loan.

Variable Rate Loans - The interest fluctuates according to changes in an index rate the standard is defined by the lender

Adjustable Rate Mortgage - A residential mortgage with variable interest rates and usually with fixed interest caps

5/1 Loan - Is a loan with a fixed rate for a five year term then converts to a variable rate loan

Those are just a few of the most common and obviously attractive loan types that investors consider when looking to refinance investment property. There are variations on these and other options.

Requirements To Refinance

You should have from 20% to 50% equity in your investment property, when you plan to refinance investment property to increase your cash flow. Any lines of credit against your equity must be paid.

The lender may require a property appraisal before agreeing to refinance your loan. This can create a problem in case the value of property has gone down. You should also have a reasonable credit score as well.

Closing Costs - When considering refinance options for investment property you should understand that almost all loan types to refinance investment property will require you pay closing costs. Those fees should be factored into your decision making in order to make sure you do actually increase your cash flow when refinancing your investment property.

There are what are called no cost refinance loans, where the closing costs are included in the loan and sometimes the interest rate will be higher and savings less. Ensure the loan payments are lower on a monthly basis in order to increase your cash flow.

Variable rate loans and Adjustable Rate Mortgage Loans are lower interest rate loans initially and perhaps viable for those who keep a careful eye on interest rates and can afford to refinance investment property if the interest rates rise to the point where payments increase.

Loans that require Private Mortgage Insurance may require less equity to obtain but may result in a .5 interest rate rise per year of the loan.

Prepayment penalties can also make certain loans undesirable and result in decreasing your cash flow by refinancing your investment property.

By reading the fine print in loan terms and looking at the bottom line you can increase your cash flow when you refinance investment property.

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