Mortgage refinance is a way to take advantage of a property’s value. Essentially it means finalizing and completing a mortgage’s payments for a new mortgage with different terms. This can be done for a few different reasons, and can at times be very profitable for homeowners and real estate investors.
There can be many reasons to refinance a residential property. Some investors may be on the lookout for better rates or to change the length or terms of the current home loan. Others may want to use the funds to expand their real estate portfolio, or simply to enjoy some extra cash.
Often investors choose to use refinancing to change the terms of a loan. This typically includes switching from an adjustable-rate mortgage to a fixed-rate mortgage or vice versa, depending on the rates. Another common reason for refinancing is to shorten the term of the mortgage, often from a longer 30-year term to a 10 or 15-year mortgage.
Others may choose to do a cash-out refinance. This is when a lender borrows more than he owes on a property and takes in the difference as profit. This occurs when a home’s value has increased. Usually, investors use the funds from a cash-out refinance to renovate the property, expand their real estate portfolio for personal reasons.
The mortgage refinance process is very similar to that of a mortgage. It generally costs somewhere between 3% to 6% of the loan’s principal amount. The mortgage refinance will require an appraisal of the property, title search fees, underwriting fees, and application fees.
While mortgage refinancing can be a very profitable option for some real estate investors and homeowners, the fees involved may impact its profitability.