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Refinancing an investment property can be a way to get cash to repair or improve a rental unit. (Shutterstock)
An investment property can be a good way to generate regular income. Rental fees can defray or entirely cover your mortgage payment on a rental property, while providing some extra money in your pocket.
But just like a regular mortgage, an investment property mortgage comes with costs — ones that you might be able to lower through refinancing. Whether you’re looking to reduce your interest costs with a lower rate, pay off the mortgage sooner with a shorter repayment term or tap equity to make improvements to the property, you’ll have to follow a refinancing process.
Refinancing an investment property mortgage is similar to refinancing your mortgage on your primary residence, with some noteworthy differences. Here’s what to know about refinancing an investment property.
If you’re considering a refinance, Credible makes it easy to compare mortgage refinance rates from multiple lenders.
What qualifies as an investment property?
An investment property is a house you buy with the intention of renting it out to make money. The rental could be long-term if you own a property in an area with high rental demand, such as the suburbs of a big city, or short-term if the property is located in an area that’s a vacation destination, like the beach.
Unlike your primary residence or even a second home, you won’t be living in your investment property. But as with your primary residence, you’ll typically have a mortgage on an investment property. Ideally, rental income will cover the cost of your mortgage, with some money left over as profit.
Reasons to refinance an investment property
Many of the reasons for refinancing an investment property mirror reasons for refinancing a primary residence, including:
- Get a lower interest rate.
- Convert a variable interest rate to a fixed rate.
- Reduce total interest costs.
- Pay off the mortgage sooner by shortening the repayment term.
- Lower the monthly payment by extending the repayment term.
- Withdraw equity as cash to fund repairs, improvements, purchase additional properties or other purposes.