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Investing in rental properties is a popular strategy to earn passive income. However, as a rental property owner, you have to account for property tax, landlord insurance, repairs, property management, and a number of other expenses. In order to maximize your rental property income, you need to minimize these associated costs. Additionally, some rental property owners reduce costs by refinancing their rental property mortgage. In fact, refinancing can not only help reduce expenses, but it can also help rental property owners gain access to additional funds.
There are a number of reasons you may want to refinance your rental property mortgage. From taking advantage of the low rates to accessing the equity in your rental property, there are several reasons that might prompt you to refinance. Here’s to name a few:
The requirements to refinance a rental property mortgage is generally harder than refinancing a regular mortgage. However, that’s not to say it’s impossible. In order to qualify lenders typically require the following:
If you intend on refinancing your rental property mortgage, here are five steps you should follow to help you through the process.
When refinancing it’s important to consider how exactly you want to refinance your mortgage and why. For example, if you want to take advantage of your home equity, you can choose to opt for a cash-out refinance by taking out a larger loan amount. You can make use of the surplus money to repair your rental property, pay property taxes, purchase a new property and more. On the other hand, if you simply want to pay your mortgage off faster, you may want to consider securing a lower rate and shortening the term length.
Check out how you can refinance a second mortgage.
Before you opt for a mortgage refinance on your rental property, there are numerous costs to consider including prepayment penalties, home appraisal costs, registration fees, legal fees and closing costs as well. If you plan on switching lenders you may also be charged a discharge fee. Be sure to calculate the total costs to see whether or not refinancing will actually be a profitable option.
Before applying for refinancing evaluate your credit and finances to see if you’re eligible. As previously mentioned, you’ll need to meet certain requirements to qualify for refinancing. Moreover, in order to secure a low-interest rate, your credit score and finances should be in good shape. If you’re currently struggling with poor credit, take the time to build it before applying by making full on-time payments and reducing your debt.
Whether you want to refinance with your current lender or another, it’s best to shop around and compare costs. A mortgage broker or an online loan comparison platform can help you obtain quotes and find the best deals on the market. When choosing who to refinance with, it’s important to not only look at the costs but the lender itself. Finding someone that you trust and that has a good reputation is important as you’ll be dealing with them for a long time.
Once you find a reliable lender to refinance with, simply fill out the necessary paperwork and provide all the documents necessary for the underwriting process. During this process, the lender may require a property appraisal to verify your property value. This can take about a week to complete. If you’re approved, you’ll have to sign the contract to seal the deal. Be sure to review the details to ensure it’s what you agreed upon. Once the agreement is settled, your lender will require all the upfront payments such as the closing costs. After which, you’ll be officially “refinanced” and you may continue your renewed mortgage payments.
If done right, refinancing your rental property mortgage can help you save on interest, lower your monthly payments, pay off your mortgage faster or help you gain access to cash. On the other hand, the fees associated with refinancing can be very expensive and can easily outweigh the savings. If you plan on refinancing, be sure to calculate the costs and savings associated with it to see if it is worth it.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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