Refinancing an Investment Property

Consider investment property refinance rates when deciding on this financial move

When you own an investment property, the goal is to earn a solid rate of return on it. If, after several years of ownership, you find that your return is not what you expected, an investment property refi may be the answer. Start by looking at investment property refinance rates to be sure they represent a savings over your current rates. When done properly, refinancing an investment property can increase your short-term cash flow and help you build longer-term wealth.

Refinancing an investment property to boost your cash on hand

Cash-out refinancing might be the right answer for some property owners. Once you've accumulated equity in the property by continuing to pay the mortgage on time for several years, you can refinance for more than you currently owe on the property. The difference will be given to you in cash. This can come in handy if you need to pay off other debts or large expenses, whether those are credit lines, medical bills or maintenance bills for the property.

How an investment property refinance can pay off down the road

Once you've received the cash from refinancing, you may consider remodeling or updating your investment property. After all, it will perform best for potential short-term or long-term renters if it's up-to-date in appearance and structure. You could make aesthetic changes like repainting the interior and exterior, updating the kitchen or installing hardwood floors. You could also enhance the home's structural features by installing central air conditioning, new windows or even building an addition. Upgrading your investment property could turn it into an even more appealing investment as it may be desirable to more renters who may be willing to pay more.

Another option may be purchasing an additional investment property. With the equity you've built in the first and the rent you're earning from it, you may be able to take the money from your cash-out refinance and leverage that to buy a second house or apartment building. This is how many small landlords build their portfolio of investment properties.

Make sure you complete a break-even calculation when considering refinancing

Before you refinance any property, you should do some quick analysis concerning how long it would take to break even on that transaction. First, look into refinancing rates. You'll want to be sure that your investment property refinance rates are lower now than they were when you initially made the purchase.

Then, the refinance breakeven point can be calculated by taking into account all the upfront costs of refinancing the loan - typically the closing costs plus any points - and how much you'll save each month. When you compare the two numbers, you can determine approximately how long it will be before you break even and begin to save money. If you don't plan to own the property for at least that amount of time, refinancing the investment property is probably not an ideal financial decision as it will cost you more money than it will save you.

Learn more about refinancing from Citizens Bank

An investment property refinance can carry many benefits, such as those mentioned above as well as:

  • Consolidating debt from various credit lines, loans and other instruments
  • Decreasing the term of the loan, thus saving on total interest paid over the life of that loan
  • Converting an adjustable rate mortgage (more popular when interest rates are high) to a fixed rate mortgage (more popular when interest rates are low)

Whatever your reasons for refinancing, Citizens Bank can help. Look into our mortgages and their competitive rates to see which financing option will help you get the most out of your investment property. You can also call a Citizens Bank home loan originator to learn more about refinancing at 1-888-514-2300.