Discover The Best Rental Property Refinance Rates Available!
I know that interest rates these days can be daunting. As a luxury short-term rental (STR) investor, you're constantly on the lookout for ways to maximize your profits and increase your return on investment. One strategy that could help you achieve these goals is refinancing your rental property.
With STR demand going sky-high, I’ve put together a complete package of gems to help you secure your money, optimize your property, and start churning out massive profits in 2023.
You deserve to throw your head back and relax a little! Escape the Hustle Culture, put away the midnight oil, and get out from underneath those debts and stressors!
Let’s cover your path to great rental property refinancing rates in 2023 and beyond. First, we’ll discuss reasons to refinance, then we’ll dive into all the juicy details of rates, mortgage options, and qualifying criteria.
Here we go!
Is It The Right Time? Understanding The Benefits of Rental Refinancing
The thing about rental property refinance rates is that they are always shifting. But you don’t have to be a market wizard or investment expert to know that sometimes it’s best to keep your current rates, and other times the rates are so low, you would be foolish not to lock them in with a refinance!
I’m always keeping my students in the loop, so if you’re unsure when to strike for that maximum deal, I have you covered!
There are four main reasons to consider refinancing:
(1) Lower Your Monthly Mortgage Payments
Who doesn’t want more money in their pocket? Especially in this economy? One of the main reasons investors refinance their rental properties is to lower their monthly mortgage payments. By securing a lower interest rate, you could potentially save hundreds of dollars each month, freeing up cash flow that you can use to reinvest in your rental property or other investments.
For example, say you have a $500,000 mortgage with a 5% interest rate and a 30-year term. Your monthly mortgage payment would be around $2,684. If you refinanced that mortgage at a 4% interest rate, your monthly payment would drop to $2,387 for a savings of almost $300 per month!
Current rates for a 30-year fixed refinance are about 6.7%, but you may have other reasons to still refinance. And don’t forget, Fed rate decisions and monetary policies can always change things.
(2) Use That Hard-Earned Equity from Your Property
I like to think of it as sweat equity because you worked hard to earn that money and then thought long and hard before making your property investment. And now, if you need to draw on it, you can!
What are your reasons? Do you have big projects planned? Need capital for that next investment or renovation? Sending a kid to college? Have some credit card debts or student loans for all that expensive medical schooling?
Extracting your equity is one way to get the money you need.
Imagine you bought a short-term gem for $500,000 and took out a $400,000 mortgage. After a few years, the property has appreciated to $600,000, and you still owe $350,000 on the mortgage. By refinancing the property with a new $450,000 mortgage, you could extract $100,000 in equity (the difference between the new and existing mortgage) and use it to invest in another property or project.
Pretty nifty, right?
(3) Reduce the Length of Your Mortgage
The future can be unpredictable, and sometimes you just want to reduce the uncertainty! That’s why one significant benefit of refinancing your rental property is that you can reduce the length of your mortgage. For example, if you currently have a 30-year mortgage, you can refinance to a 15-year mortgage and pay off your rental property sooner.
While a shorter mortgage term will result in higher monthly payments, it could save you tens of thousands of dollars in interest over the life of the loan.
Are you unsure if it’s the right time or whether a reduced duration makes sense? Check out my podcast, where I show you everything from expert branding and marketing your STR to maximizing your revenue and even discovering hidden money in your investment property.
(4) Improve Your Cash Flow
This is ultimately why we do this. To produce big-time profits, enjoy passive wealth generation, and start living life the way we want! Overall, rental property refinancing can be a game-changer for your cash flow, and I'm excited to tell you more about it!
Again, assume you have a $500,000 mortgage with a 5% interest rate and a 30-year term. Your monthly mortgage payment would be $2,684. By refinancing to a 3.5% interest rate, your monthly payment drops to $2,245, saving you $439 monthly or $5,268 yearly. Think of all the things you could do with an extra $5,268 per year - invest in a new property, renovate an existing one, or increase your cash reserves.
Now, these are just hypothetical numbers. The current refinance rates for 30, 20, and 15-year fixed refinances range from ~6.7% to 6%. That said, if you can lock in a lower rate, put your equity to work, reduce your monthly payments, or reduce the mortgage length, you’ll be sitting pretty!
I know all this can get a little confusing and stressful, so if you have any questions about anything, drop me a message.
Adjustable Rate Mortgage Vs. Fixed-Rate Mortgage Refinancing
Speaking of finding the right refinancing, you generally have two main types of rental property refinance rates. These include fixed-rate loans and adjustable-rate loans (also known as ARMs).
Fixed-rate refinancing is a type of loan where the interest rate remains the same throughout the loan term. This means your monthly payments stay the same, providing stability and predictability.
Do you prefer stable and predictable payments? Are you planning to stay with the rental property for a long time? Does the future pose the risk of interest rate increases?
The interest changes over time with an adjustable-rate mortgage (ARM) refinancing. Typically, ARMs offer a lower initial interest rate than fixed-rate loans, but this rate can adjust up or down based on market conditions.
I recommend ARMs when you plan to sell your rental property or refinance again before the initial fixed-rate period ends. If interest rates are likely to decrease, or you’re comfortable taking on more risk for more reward upfront, consider ARMs.
Need help getting hooked up with a reputable lender or mortgage broker? My Funding Super Pack can connect you with the top 16 short-term-rental (STR) lenders. This is my personal Rolodex of ‘money masters’ you need on your side!
Meet Your Needs and Goals: Your Best Refinancing Options
You’re probably wondering what refinance makes sense for your rental property. Well, to be honest, there is never a one-size-fits-all. The best answer stems from a combination of things. You have to consider your timeline and objectives. You have to consider current market conditions. And you also have to think about future forecasts.
Let me give you a quick, brief run-down so you understand the main aspects of each rental refinancing option, including the rental property refinance rates.
- 30-year fixed refinance: This option allows you to refinance your rental property with a new 30-year fixed-rate mortgage. With this option, your interest rate and monthly payment will sustain throughout the entire 30-year term.
- 20-year fixed refinance: When you do a 20-year fixed-rate mortgage, you keep the same rate and monthly payment for the 20-year term. Compared to a 30-year option, you have higher monthly payments but pay less interest over the life of the loan.
- 15-year fixed refinance: The interest rate and monthly payment never change, but you’ll have even higher monthly payments than the 20-year fixed option. However, you save the most money in interest over the life of the loan.
- 7/1 ARM refinance: An adjustable-rate mortgage (ARM) has a fixed interest rate for the first seven years, after which the interest rate can adjust annually based on market conditions. This option can offer a lower initial interest rate and monthly payment, but there is the potential for payment amounts to increase significantly after the initial fixed period.
- 5/1 ARM refinance: This option is similar to the 7/1 ARM refinance option but has a fixed interest rate for the first five years before the rate can adjust annually based on market conditions.
- 30-year FHA refinance: The 30-year fixed-rate FHA refinance is insured by the Federal Housing Administration and requires a lower down payment and credit score than conventional loans. Of course, FHA refinancing also comes with mortgage insurance premiums that can increase your monthly payment.
- 30-year VA refinance: Guaranteed by the Department of Veterans Affairs (VA), this option comes with reduced rates and does not require a down payment. Of course, not just anybody can get them. VA refinancing is only available to eligible veterans, active-duty service members, and their surviving spouses.
Still unsure or have some questions about these loans and refinancing options?
Check out my comprehensive blog page, or simply reach out at my website, and I’ll be more than happy to address your concerns. I know it can get complicated, and that’s why I make everything as smooth as butter!
Applying for Refinancing: What You Absolutely NEED to Know
Here’s the good news, as a luxury STR owner, you have many options to refinance. Now the bad news: as a luxury STR owner, you have many options to refinance!
Truth be told, all the requirements, criteria, and refinance products can get a little overwhelming. Unless you speak with a seasoned expert, you might be totally lost. Numbers and terms get thrown around, so it’s easy to miss or misunderstand a critical detail.
That’s okay! I’m here to help and make this as easy as possible. Here are typical requirements (that do vary) as you consider applying for rental property refinancing:
- A minimum credit score of 620 (although sometimes 580 is fine)
- Maximum debt-to-income (DTI) ratio of 36%
- Minimum 25% down payment
- Increased interest rates and fees compared to non-rental loans
- Private mortgage insurance (PMI) unnecessary with a 20% or more down payment
- Cash reserves to cover six months of mortgage
- Single-family, small multifamily, condos, and townhomes all qualify
Again, these terms vary based on the property type and borrower credit. A general rule of thumb is that lenders will view investment refinancing as riskier than a traditional mortgage for a primary residence. As a result, higher interest rates and down payments are standard.
Of course, there’s no reason why you can’t make this work in your favor! My handy tools and tips will show you how to maximize your revenue and cash flow, no matter the refinancing you choose. You can take tax deductions and lower your debt with smart money management.
Unlock The STR Refinancing Rate Perfect For You
Rates and markets are in flux, but with the right game plan, a little self-belief, and a top-notch expert on your team, you can create massively profitable rentals! Why wait or delay any longer?
You’ve been grinding for long enough – the time to unlock the lifestyle you truly want is here.
Take it from one of my proud students, Debbie K., whose “vacation rental listing went from Page 17 to Page 1.”
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