How does Refinancing work in 2022

The real estate niche is attractive to investors. And it is no wonder. In fact, real estate investment opportunities can be available for both experienced investors and starters in the industry. How can you start investing? There are two options for you:

• Buy an investment property (requires investment)

• Do cash-out refinance of your current mortgage and invest money in a new property

Sounds interesting?

According to Statista, refinancing has been considerably growing in the U.S. since the end of 2020. The refinance loan originations peaked at over $850 billion demonstrating the highest rates since 2003. 

But what does refinancing mean? 

Refinancing is the replacement of a current mortgage with the one having better conditions. Technically, it is possible to refinance at any moment, though it does not always make sense. 

Essential plus of refinancing 

• Cash-out 

Essential minus of refinancing

• Extra costs right after the property purchase (up to 3-6% of a loan's principal)

When does refinancing make sense? 

Refinancing provides lots of benefits. But sometimes, it is not easy to decide whether it is the right time. Here are the two best scenarios for it: 

1. Say you saved money for a house and bought a $600K house with a mortgage, and its price has risen while the percentage rates have dropped down. You have an opportunity to reinvest the money from refinancing. 

2. One more example, you bought a house in poor condition at an under-market price. After its renovation, the house will have a $100K higher price. So, in this case, you can cash out. 

But remember that refinancing an investment property requires from 3 to 5 years of property ownership. That is the time after which the prepayment penalty goes out.

Refinancing is a great scenario not only because of its investment opportunities but also for a family planning to live in the house for at least ten years or longer. 

You definitely shouldn't refinance if you want a fast return on investment. Because it usually takes a year to compensate for the fees it takes to refinance.

In general, that is a rare case that the property's price can go up so fast to do a refinance right after the purchase. But once you have a chance to refinance, you shouldn't ignore this chance to invest the money from cash-out in another property or business.

Buying multiple properties can be affordable to beginners with cash-out refinancing.