Opting to Refinance Investment Properties

The decision to refinance investment properties is never an arbitrary one. Usually, it is done with a specific purpose in mind. Usually, there are two reasons why people will visit a portfolio lender to refinance investment properties. The first reason is also the most common. People will refinance investment properties in order to lower their interest rates. The second reason people opt to refinance is to lower their monthly payments. This can allow them to get a greater handle on their personal budgets. However, there are other important reasons to refinance investment properties that are often overlooked. Namely, mortgages should be refinanced when significant changes in the market occur.

Take the following scenario into consideration: a change in the market occurs and this has a dramatic effect on the feasibility of the loan. A common example of this would be a decline in the interest of purchasing homes. This could lead to many loans being offered at a much lower interest rate. The purpose of this is to stimulate interest in acquiring an investment mortgage.

Now, if you have acquired a loan at a higher interest rate than rates that are currently being offered, there is no reason to stick with the higher interest rate. It just would not make proper fiscal sense. Therefore, seeking to refinance investment properties would be the right move under such circumstances.

This brings us to a very critical point. The equity of the home must exceed the initial purchasing price of the home combined with the interest rates on the mortgage. The equity of the home can go up and down based on a number of external factors. Interest, however, will remain fixed unless the terms of the loan involved a variable rate. But, regardless of whether or not the interest is fixed or variable, refinancing investment properties should always sought when better interest rates become available.

However, the terms and conditions of the loan must be examined as well. A low interest rate will lose much of its benefit if the new mortgage involves a five year loan with a balloon payment that is unfeasible. After all, what would be the point of refinancing to a new loan if the new loan’s terms virtually guarantees an eventually foreclosure? Obviously, this would not be a wise move. Instead, biding one’s time until finding a loan with a solid interest rate and agreeable terms and conditions would be the best option. This would be the proper strategy to refinance investment properties. Keep this in mind when exploring portfolio loan options.

by Susan Lassiter-Lyons - May 14, 2009

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Source: http://www.portfolioloanblueprint.com