Refinances are used by thousands of property owners and successful real estate investors to increase the number of properties they own and save money. Doing so, lets them purchase more properties quicker and make more money faster. Today, we’ll walk you through some basics of refinancing and give you some reasons why they are a super powerful tool for any property owner or investor.
What is a Refinance? ❓
A refinance is how a person can get a new loan on a property with different terms than an existing loan. People refinance primary residences and investment properties for various reasons. The decision often takes a little bit of work and some “back of the napkin math,” but it usually allows someone to save and/or make a lot of money. We hope these reasons shed some light on the refinance process and gives you a better sense of how to leverage them as a way to lower costs and build wealth. Let’s take a look at how refinancing can save you money.
Market Interest Rates Decrease 📉
People tend to refinance properties when market interest rates drop. If you have a loan paying 4% interest and market rates are 3%, then refinancing would lower your interest rate resulting in lower monthly interest payments. When interest rates are low like they are now, you see the refinance getting much media attention as thousands of homeowners flock to lower their monthly mortgage payments. So, try to stay up-to-date with the current mortgage rate because you might just be able to save a bunch of money!
Switching from Variable to Fixed 🔀
Often, you see variable interest rates lower than fixed interest rates. This is because variable interest rates are subject to rate changes throughout the life of a loan. If you have a variable interest rate on your current property, it might be worth considering refinancing because market interest rates are at historic lows. You may be able to lock in a rate in the 2–3% range depending on your credit, loan program, and other factors. However, if interest rates are super high (like they were in the 1980s), it may be worth investigating variable interest rate loans more. Now, let’s look at how refinancing can make you money.
Pull Money Out 💸
Perhaps one of the most incredible benefits of the refinance is the ability to pull money out of a property without triggering a tax bill. Usually, when you own a property, it will appreciate in value, and you’ll pay down the principal balance of the existing loan. So, throughout a couple of years, you’ll build up a substantial nest egg for yourself. Many investors see this nest egg as an opportunity to purchase another property or to use it for renovations on the current property. The choice is yours, and it’s definitely an incredible opportunity to go out and buy another property.
Thanks for Reading!
Let us know which reason you liked best and if you recently refinanced or have considered refinancing in the comments below! If you enjoyed reading this article and want to check out more similar content. Head over to Millennial Investments to learn more wealth building tips and tricks! Happy reading, and thanks for supporting our work! 🙏😇