Mortgage interest rates have been near record lows for the past several years. At the same time property values have jumped dramatically, giving homeowners plenty of equity. Those two factors combine to make right now an excellent time to get a cash-out refinance loan.
But what if you own rental properties or investment homes? Could you take out a cash-out loan on them? And should you? Here are some reasons you might consider using that type of mortgage on your rental properties.
Improving Your Rental Units
If your investment home or apartments have been in need of some significant repairs or renovations, pulling cash out of your equity could be a cost-effective way to pay for it. Once you update or fix the properties, the value may increase, bumping up your equity again and may allow you to charge more in rent. Refinance loans always come with closing costs and fees though (even if it's at the back-end) so be sure to make sure the numbers pencil out.
Expanding Your Rental Business
If your rental business is running smoothly, a cash-out refinance might be a way to get a down payment for another investment property to your portfolio. Depending on how much you have in equity, you may even be able to pay outright for your next rental unit.
Lowering Your Interest RatesSince rates are still low for now, if you took out mortgages at a higher cost several years ago, this may be a good time to get a cash-out refinance. You’ll reduce your interest costs and still be able to pull out some equity for projects.
Personal Financial Help
Life is unpredictable and you might need the cash for your own life needs. It could be medical expenses, sending a kid to college, or even to pay for your retirement expenses. Cash-out refinance mortgages are great because even though the loan is tied to your property, you can use the money for any purpose whatsoever, and the cash received is a non-taxable event.
Requirements for an Investment Property Cash-Out Refinance
Lenders will want to see that you have a significant amount of equity in your rental unit. That means having a nice low loan-to-value ratio. You will also need to have a decent credit profile for approval and, the higher your score, the lower the interest rate you’ll pay. In addition, the mortgage lender will look for a low debt-to-income ratio. This does not mean that you can’t have any debt, but simply that even with all the money you owe on your rental property, the income being brought in by it provides plenty of cushion to make the payments.
So the answer is yes, you can take out a cash-out refinance on your investment properties, but whether you should depends on your individual situation and finances. Call us today, we can help you run the numbers.