Refinancing can save you a lot of money on your mortgage payment each month. Can it do the same for your rental property? Refinancing a loan on a rental property can increase your profits, but how do you know if it makes sense? Just like with the home you live in, you’ll want to start by calculating how long it will take to recoup the costs of refinancing:
Visit a lender. A lender can tell you if you qualify for refinancing. Lending guidelines can be slightly different for second homes and investment properties. Your lender will order an appraisal to see if you have enough equity in your property You’ll also get an idea of the rate you may be able to get and what you’ll pay in closing costs to refinance your loan.
Calculate your savings. Take your existing monthly payment and subtract the monthly payment you’ll have with a lower interest rate. Remember, during a refinance, typically only your principal and interest payments will change. Divide your closing costs by the amount you’ll save each month. For example, if you’re looking at about $3,000 in closing costs and you’re saving $250 per month by refinancing, it will take you 12 months to recoup what you paid in closing costs.
Consider your long-term plan. Do you plan to keep your rental property for years? Or are you planning on selling soon? The longer you plan to keep your property, the more sense it probably makes to refinance. If your goal is to sell your property within a year or two, think hard about whether it’s worth the time and money to refinance. Refinancing can save property owners a lot of money. Taking just a few minutes to make some calculations can help you decide if refinancing is right for you.