How To Use Your Current Home to Buy a Second Home

It’s called a cash our refinance and it could help you afford to turn your current home into an rental, or purchase a new income property. Here is how it works. Let’s say that you have owned your current property for several years. Chances are the market has pushed your home value higher and even though you can’t do anything with it, that added value belongs to you and this is where the cash out refinance comes into play. Right now millions of people are refinancing their homes because of historically low interest rates just to have a lower monthly payment. You can also refinance your home and pull out it’s increased value in return for the bank taking a larger ownership share in your home. Let’s say that you bought your home for $300,000 and now you believe it is worth $400,000. That is $100,000 in equity that is just sitting there. You could complete a cash out refinance and end up with a lower interest rate.

Many others may also be doing a cash out refinance as well, but they might only use that money to buy new cars or pay down other debt. Instead you could take that money and use it to secure an income property that you manage as a landlord and that results in the equivalent of a paycheck every month. With real estate values remaining strong investing in real estate represents some potential stability in your portfolio while stocks and other more traditional investment infrastructure like stocks seeing increased volatility. Contact us today to find out how to reinvest your homes equity and to receive in depth coaching on becoming a landlord. We would be happy to help you out.

Should I Refinance My Home

This is a question that I am frequently asked.  How do you decide if you should?  There are several questions that you should asked yourself to help you decide if the time is right for you.

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  1.  The first question is what is the current interest rate on your loan? There is a general rule of thumb that says if interest rates are more than a point lower than what you have it might make sense to refinance.  For example, if the interest rate on your loan is 4 and rates are at 2.75.  You should consider.  You will find your interest rate on your monthly statement.
  2. You find out that interest rates are at least a point less than where you are.  Then what?  I feel you need to asked yourself some more questions.  How long do you intend to own the property? It costs money to refinance.  On average it costs in the range of $2,200 to $3,000.  That number can be higher. With that number in mind, how many months would it take to break even with the money you would save at the lower interest rate?  You certainly want to be able to enjoy the money that you are saving.  Know that most lenders will tack the refinance cost, on to the loan.  So that means that you will owe more on your property once you refinance.
  3. Do you have plans or needs for the money that you will be saving each month?  You might be saving a couple of hundred dollars if you interest rate is more than two percentage points higher than where interest rates are now.  What would you do with that money? 
  4. Another thing to asked yourself is could I shorten the life of my loan?  Could you take your current thirty year, mortgage that you still have 25 years on down to a 20 year or a 15 year loan?  If that is the case it may truly be a good idea to refinance.  Know that your monthly payment will more than likely be higher, but you may be in a better financial situation than you were when you took out your mortgage and that extra amount may not be as significant as it was when you took out your loan originally. IF you cannot, know that you will be starting over with a new thirty year loan.   

After reading this post you may still have questions.  I would like to recommend that you speak with a lender that I trust, Dave Armstrong.  He is with Elevations Credit Union.  He offers great rates and low fees.  He can be reached at dave.armstrong@elevationscu.com or 970-388-3903.