If you’re a real estate investor, you know how important it is to maintain decent cash flow. It is therefore often advantageous to mortgage the properties in your portfolio rather than buying them outright, even if the latter is an option.
If you have at least one mortgage now, you might want to consider refinancing it sooner rather than later. Here’s why.
1. Prices are already climbing
Refinance rates, which tend to be a bit higher than the rates you’ll see available for purchase mortgages, are already starting the year higher than they were in 2021. At the time of as of this writing, the average 30-year refinance rate is close to 3.7%
Historically speaking, this remains a competitive rate. But if rates continue to climb, refinancing will no longer have the same appeal, so you might want to grab this opportunity sooner rather than later.
The Federal Reserve has previously indicated that it plans to raise rates in the coming year. And while the Fed doesn’t set mortgage rates, it influences them. There’s a good chance the average 30-year refinance rate will hit over 4% during 2022, so it pays to get in now, when rates are lower and savings opportunities are greater. abundant.
2. Your property taxes could go up
Real estate investors and homeowners should prepare for higher property taxes this year. This is because home values have increased across the board, and these taxes and market value tend to go hand in hand.
A mortgage refinance could help offset a property tax hike if the savings are substantial enough. And while you may be inclined to raise rents to help offset a higher property tax bill, whether that strategy actually works for you is another story. If you implement too drastic a rent hike, you may find it difficult to retain your existing tenants or find a replacement.
3. You can leverage the equity in your property and build your portfolio
In the third quarter of 2021, American homeowners were sitting on a collective net worth of $9.4 trillion, according to Black Knight. And now is a good time to consider doing a cash refinance.
Since refinance rates are always competitive, a property you own is a good source of cash to exploit. You can use this money to add to your real estate portfolio, renovate an existing property you own to justify a large rent increase, or invest elsewhere, such as loading onto REITs (real estate investment trusts).
Consider refinancing early in the year
Many homeowners were spoiled for record mortgage rates throughout the latter part of 2020 and 2021, so today’s rate offers might read as a pretty unattractive deal. But historically speaking, rates are still very competitive, so it’s definitely not a bad time to consider refinancing.
But if you’re going to go this route, hurry. It’s easy to argue right now that today’s refinance rates are low enough to be attractive, but if they rise steadily, that might cease to be the case.