Key Takeaways
- Refinancing Unlocks Financial Flexibility – Lowering your interest rate, changing your loan term, or tapping into built-up equity can reduce costs, boost cash flow, and free up funds for property improvements or new investments.
- Eligibility Depends on Strong Financial Standing – Lenders typically require at least 25% equity, a credit score of 620 or higher, steady income, and a manageable debt-to-income ratio before approving a refinance.
- A Clear Process Ensures Success – From gathering documents and applying, to reviewing offers and closing, following the refinancing steps carefully helps maximize savings and return on investment.
Investing in a rental property can provide you with a number of benefits, including recurring income month after month. However, if you financed its purchase through a mortgage, you may not be realizing your investment’s full potential.
This is where refinancing your rental property mortgage can come to your aid. We at Mark Thomas Properties PM will cover everything you need to know about rental property refinancing.
Learn how we can help you.
Why Should You Refinance Your Rental Property?
The following are the reasons why you should consider refinancing your rental property:
Secure a Reduced Interest Rate
Lower interest rates can save you huge sums of money over the duration of a loan. Even a marginal reduction can save you tens of thousands of dollars.
When offering new rates, your lender will take into consideration a myriad of factors like your credit score, housing market, and your income.
Change the Term of Repayment
While this can seem counterproductive as the monthly payments will go up, it can help you shorten the repayment period. The rational is to pay back the loan quickly and reduce the amount of interest on the mortgage.
Boost the Cash Flow
Mortgage payments will usually take the bulk amount from the rental income. Refinancing the property could be a way to open up more cash flow. You could extend the repayment period, which would mean lower mortgage payments and more cash flow.
However, with this approach, you’ll end up paying more interest over the duration of the loan.
Cash Out the Equity Built Up
Every month that you make a payment, equity is built up on the property. Over time, this can add up to quite a substantial amount.
Learn how we can help you.
Increase the Value of Your Property
A cash-out refinancing can help you free up some cash that you can use to boost your property’s attractiveness. The impact of this is that it can help you charge more rent and attract and retain quality tenants longer.
Some of the upgrades you can make to boost your ROI include installing air conditioning, a washer and dryer, and hardwood flooring, among others.
What are the Requirements for Property Refinancing?
Before you can refinance your rental property, there are certain requirements you’ll need to meet first.
They are as follows:
- Have more equity built up in the property. This is one of the things that your lender will want you to have.
- A credit score of at least 620. Having good credit is another requirement for property refinance. And the higher it is, the lower the interest rate is going to be.
- Not have too many debts. The lender will want to verify that you aren’t overextending yourself by having a high debt-to-income ratio. To determine your own debt-to-income ratio, divide your total monthly debt by your gross monthly income.
- A source of income. How much you make will also determine whether or not you qualify for a property refinance. To maximize your chances of approval, ensure you have about 6 months’ worth of savings in the bank.
Learn how we can help you.
What are the Steps for Refinancing a Rental Property?
The exact process to follow to refinance a rental property will vary from one individual to the other. But, generally speaking, the process starts with gather the necessary paperwork.
Some of the documents to have include proof of income, W-2 forms, financial statements, and proof of homeowner’s insurance. You then need to fill out the application form and submit it for approval. You can do this online.
From there, review the terms of the offer. You may also want to compare the offer with other lenders. If you’re content with what you get, lock in the rate immediately. This is because it’s bound to change over time.
Once this is done, you must wait for the underwriting and close on the loan. The lender will examine all the documents and verify the information provided. After this is given a clear to close, you’ll need to sign the contract and pay the associated costs.
Is a Cash-Out Refinancing Possible?
Is your goal to cash out some of the equity that has built up on the property over time? If so, consider a cash-out refinance. However, this does come with certain risks. Among these is an increased debt. As such, make sure you are able to pay the additional payments comfortably.
Bottom Line
As you can see, there are several perks of refinancing your Durham rental property. Your mortgage payments could become more affordable, help you pay off the loan quickly, and enable you to tap into the equity built up in the property, among other benefits.
However, you have to do it right for maximum benefits. Mark Thomas Properties PM can provide you with all the advice you need for optimal ROI. We specialize in full-service property management and real estate solutions. Get in touch to learn more about our services!
