When you refinance a mortgage, you take out a new loan to pay off your existing mortgage at a lower interest rate – usually one that better reflects the current market. But sometimes, homeowners also choose to refinance their mortgage in order to access the equity they’ve built up in their home. This is known as a cash-out refinance.
If you’re considering a cash-out refinance to buy an investment property, there are a few things you should know first. Here are some important considerations to keep in mind.
The Pros of Cash-Out Refinancing for Investment Properties
There are a few key benefits of cash-out refinancing for investment properties. First, it can help you free up capital that you can then use to reinvest in other properties. Additionally, it can help you lower your monthly mortgage payments, giving you more cash flow to work with each month.
Of course, as with any financial decision, there are also some risks to consider.
The Cons of Cash-Out Refinancing for Investment Properties
When you cash-out refinance an investment property, you are essentially taking out a new mortgage on that property. This means that you’ll have to go through the application and approval process all over again. Additionally, you may end up with a higher interest rate on your new loan.
Another consideration is that when you refinance, you may reset the clock on your loan’s amortization schedule. This means that you could end up paying more interest over the life of the loan.
Finally, it’s important to remember that a cash-out refinance is still a loan. This means that if you default on your payments, you could lose your investment property.
Before you decide to cash-out refinance your investment property, be sure to weigh the pros and cons carefully. This will help you make the best decision for your specific situation.