Refinance Demand is Up 81% From Last Year—Is Now the Time to Cash Out?
Summary
Interest rates have dropped, making refinancing more appealing for homeowners, including those with short-term rentals. This could be an opportunity to pull equity out of your primary residence to use for an all-cash purchase of an investment property, or to lower your monthly payments. Consider the costs of refinancing and your investment strategy before making a decision.
Key Insights
- •Refinance activity is up 81% year over year, due to dropping interest rates, with the 30-year fixed rate now around 6.19%.
- •The difference in monthly payments between a 6.25% and 5.125% mortgage on a $2.2 million mortgage is $1,467 per month or $18,804 per year.
- •To generate $1,500 in cash flow with a mortgage rate of 5.5%, an investor would need to buy a property for $440,000, putting down 20% ($88,000) to secure a $352,000 loan.
Action Items
- ✓Evaluate whether refinancing reduces cash flow, as it may not be worth it if the added funds are used for cosmetic upgrades.Effort: lowImpact: medium
- ✓Consider refinancing a primary residence instead of purchasing an investment property, which may create more liquidity with less hassle.Effort: lowImpact: medium
Watch Out For
- ⚠Following the herd into refinancing is not a wise move, as each investor’s situation is unique.
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