Should Investors Refinance with a Fixed Mortgage Rate?
Should Investors Refinance with a Fixed Mortgage Rate? Why would you want to refinance your fixed rate mortgage? If interest rates drop, you may want to do so to reduce your monthly payments so you can increase your cash flow in your investment. Makes sense. However, there are things you need to consider first:
Closing costs will increase your principal
This is often 3% to 6% of the loan’s principal. Every time you redo anything on your mortgage new fees come into play. The lender, appraiser, and practically everyone else involved will charge some sort of refinancing fee which gets tacked on to the loan principal. However, your broker may be able to negotiate to your benefit. In fact, a broker may be able to get you lower-than-normal interest rates on your refinancing too.
When you plan to sell is very important
The money you save on reduced monthly payments may not recoup what it cost you to enter into the new loan, especially when you consider that your first few new payments almost exclusively go to interest. If you plan on selling your home within two years of refinancing, you may actually owe more on the loan than you did in the first place.
How will you invest the difference?
Many people refinance to consolidate their debt. Replacing high-interest debt with a low-interest mortgage can be a good idea IF you are smart with your finances. You could also refinance in order to free up some cash so you can continue to grow your real estate investments.