Rental Refinance
Consider a situation in which you have a mortgaged property and you have built quite a handsome equity in it. You have rented it out and are earning a fairly good amount of rent every month. You, however, want a big pay off and for that you need big money to invest too. The best course for you is to refinance your rental property to raise the money you want. There are many benefits of refinancing your rental property.
You can retain your regular and secure source of income, and index the ever increasing rental income, which can be used to make repayments of your loan or pay off your recurring home expenses.
You can also get rid of the high rate of interest that you may have been paying on your existing mortgage.
You can release a great amount of built-in cash in your property by refinancing it without paying anything in taxes, because borrowing money is not taxable.
There is another benefit also. You can use a small part of your refinance amount on improving your house or by adding a room or a garage and earn a substantial increase on your rental income. You can still save a substantial amount to invest in some other business venture and have a much larger cash flow.
You should set your financial records, especially the credit history in order, pretty long time before you apply for refinance of your rental property. Get your credit report from the credit rating agencies and check any errors in it. Contest the errors that you come across and have the corrections incorporated in your credit reports.
There are many factors that you should consider before opting for a refinance of your rental property. The most important of all is the current home mortgage rates, which keep fluctuating in response to the reserve bank policies.
You may need private mortgage insurance—PMI. It is an insurance policy that the lenders take to protect themselves in the event of the lender’s failure to pay off his loan. It benefits the borrowers also as they can avail of a minimal repayment installment to refinance the rental property.
You must also consider which mortgage program is best suited to your financial needs. There are many remortgage schemes in the market. It is always advisable to devote some time and effort to comparison shopping about all the available refinance options.
Get a Good Faith Estimate from your lender to apprise you of the estimated costs that you may have to incur in your mortgage transaction.
You have to consider the monthly repayment installments so that you do not invest in trouble along with your refinance. You should also consider the loan term that ranges from 10 to 30 years and also whether or not you will be allowed to make extra repayments to reduce your loan earlier without incurring penalties. You have also to consider the stability of the sources of your income considering your future expenses and other contingent domestic liabilities.
Study the financial terms that the lending companies use while you are comparison searching. Some companies may lure you by offering discounts on one feature and fleece you by adding extra levies on another feature. Carefully go through the implications of all the terms and conditions of the refinance package. Besides the interest rate, you should also consider the type of package, over payment penalties, lock-in period, mortgage insurance, payment schedules and so on.
Last but not the least, when you have finally settled for the lender, there is the documentation work, which will bind you till you have cleared off your debts. There are many types of fees and charges that include application fee, evaluation fee, legal counseling charges, closing charges and so on. These charges may vary from lender to lender ranging from free ships, reduced charges to full payments.