3 Refinancing Tips for Residential Real Estate Investors

Posted On Friday, 12 March 2021 20:30

For many Canadian families, residential real estate investment has become a major source for generating short-term income (through rentals) and long-term equity (through property ownership). 

But getting the most out of your residential investments involves more than just finding good tenants and maintaining the properties: it also means understanding how the houses themselves can be leveraged for maximal income, and to do this it is necessary to understand when and how to refinance your mortgage or mortgages.

Refinancing is a relatively simple process by which an existing mortgage is replaced by a new one. This can be done to free up cash for renovations or repairs, to consolidate debt, or simply to take advantage of more attractive interest rates.  

If you own residential real estate properties for investment reasons, here are three tips that can help you take advantage of refinancing to make property management easier and get a faster increase in returns. 

1. Refinancing vs Home Equity Loan

A house is a valuable asset that can be used to unlock funds through a variety of different financial tools. Before you start looking for a refinancing package, therefore, it’s important to understand whether refinancing is the best way to achieve your goals, or whether a getting a home equity loan might be more effective. 

Here are the main differences between these two options:

Refinancing: Refinancing involves replacing an existing mortgage with a new one. In the process, it may be possible to change the repayment timeline, monthly rate, or to secure a lump sum payment, depending on how you choose to refinance.
Home Equity Loan: A home equity loan functions as a second mortgage based on the equity you have built up in a property. 

Generally, a home equity loan is a better choice for property owners who need cash and are already locked in at a good interest rate, while refinancing may be a good idea if interest rates have dropped since you purchased your property. 

2. Take Advantage of Low Interest Rates 

The key to smart refinancing is all about the interest rate. Shaving even one percentage point off your rate can save you hundreds of dollars a month, which is one of the reasons refinancing is particularly appealing for people who are paying off mortgages on multiple investment properties: it doesn’t take much for the savings to really start adding up. 

After months of rock-bottom rates, the rate for mortgage refinancing is starting to creep up, so if you have been considering refinancing on one or more of your properties, now might be the best time to do so. 

3. Work with a Residential Mortgage Broker

While it is possible to refinance your mortgage through a bank, going to a residential mortgage broker will expand the number of borrowing options open to you. 

Residential mortgage brokers like Burke Financial work with a range of financial institutions to find lenders willing to offer the best terms. A mortgage broker does not actually provide loans from their own funds, but act as an intermediary, connecting you with institutions in the lending business. Their primary duty is to their clients, which means that you can trust your brokerage to provide you with a deal that is in your best interests. 

Mortgage brokers are also a good choice in situations where credit score is an issue. Most brokerages will still be able to secure you a loan even if your score is below 650, and can work more quickly than other types of lender. Should you require emergency funds, a broker may be able to get you the money you need in as little as two business days. 

4. Don’t Let Yourself Become Over-Leveraged

Understanding how to use leverage to your advantage is key to successful real estate investment, especially for new investors who don’t have large amounts of capital. One of the most common mistakes first-time investors make is that they are simply too cautious, and their anxiety about carrying a large debt load leads them to pass up on opportunities to make deals that could help them grow a lot faster. 

But while it’s nearly impossible to make significant gains in your portfolio if you aren’t willing to take a few risks, it is also the case that over-leveraging yourself can leave you exposed to significant asset loss in the event of market turbulence. 

Fortunately, refinancing can help you take advantage of good interest rates and save money on your mortgage payments without having to worry about taking on additional debt.  

Being a successful real estate investor is all about putting your assets to wise use so that you get the maximal return on the money you put in. This means knowing how to strategically use debt to take advantage of favorable economic conditions. 

One of the smartest ways to use low interest rates to generate usable capital is mortgage refinancing, and if you think this could be an appropriate solution for you, get in touch with an experienced residential mortgage brokerage that offers refinancing today.

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