Refinancing your property for additional cash is a strategy that can work in multiple settings. Getting the cash flow you need in one area gives you the ability to invest in opportunities in another.
Refinancing is one of the easiest ways to generate cash if you own property. Here, you’re simply taking equity out of the real estate and using it for something else.
But how do you do this effectively?
Assess Your Financial Goals
The first step is to go through your financial goals and see what it is that you want to achieve, whether that’s in real estate, business or stocks. Ideally, you should have a profit-generating plan where it makes sense for you to release cash from your property.
You should also think about how much equity you have in your home. You can calculate this by taking its market value and subtracting the mortgage on it.
Check Your Credit Score
You also want to think about your credit score. Ideally, it should be “good” or “excellent” for refinancing, since the lender is taking on additional risk.
If you want to improve your credit score, ensure you pay down your debt-to-income ratio first. This involves reducing the money you owe on high-interest credit cards. Also, get an agency to check your credit report for errors, just in case there is a problem with it.
Look Around For Lenders
Next, you want to shop around for lenders and see who is offering the best rates. Cash refinance options that let you borrow more than the value of your mortgage are also useful.
Look carefully at closing costs to ensure you aren’t paying above the odds to refinance. Sometimes, these costs can be high, so always be careful with this.
Choose The Correct Refinance Type
As you explore the market, you will come across several types of refinance. Which you choose will depend on your personal circumstances.
The most obvious is the cash-out refinance where you take cash out of your home and then take on a bigger mortgage to cover the difference. However, you might also get a home equity loan, where you keep your original mortgage, or use a HELOC when you draw credit from your property as needed.
Whenever you consider refinancing like this, always go to a real estate lawyer. Ensure the deal is fair and is working in your interest for the things you want to achieve financially.
Lock In Your Rate
Finally, you’ll want to lock in your rate and close the deal. Be aware that rates can change quickly on mortgages and refinancing offers, so you’ll want to strike quickly if you think you’re getting a decent deal. The market can fluctuate and if you decide to go with a standard variable rate, you’ll almost always pay more.
The final step is to sign the paperwork at your lawyer’s office and pay the closing costs. Then, you can use the funds to search for investment opportunities elsewhere, like high-growth stocks or rental properties.
