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Leverage is one of the most powerful ways to invest, but there are a variety of ways to use leverage in order to invest in real estate.
One of the most powerful tools that you can use to leverage your existing wealth is the cash-out refinance.
Now, what is a cash-out refinance and how can it help you leverage your portfolio to make new investments? Let’s dive in.
But first, if you want to investigate what a cash-out refinance would mean for their investments moving forward, click the link below for a free strategy call today with our mortgage team at LendCity.
What is a Cash-Out Refinance?
A cash-out refinance is essentially a form of refinance that allows you to draw out equity that you have earned and built in your existing property to make new investments. Of course, this option is only available if you have a minimum of over 20% equity in the home and you cannot take out more the 80% of the home’s total value.
This is a powerful tool because the money that it provides you with is naturally replenished by making your mortgage payments on the property so in many cases you are not disrupting your usual finances too much by using one.
Why Would You Do a Cash-Out Refinance?
Typically, the main reason you would want to do a cash-out refinance over another form of loan is because the interest rate on a refinance is going to be much lower than you would get for a hard money loan nearly 100% of the time.
Also, it allows you to leverage your hard-earned equity while maintaining a single line of debt between your mortgage and your cashed-out funds. This can be incredibly helpful for maintaining a healthy credit score since lenders will see that you are not taking on too many excessive debts and instead are only running one line.
Risks of a Cash-Out Refinance
One of the greatest risks of a cash-out refinance is the fact that usually you will wind up with the new mortgage being set at a higher interest rate, higher monthly payments or for a longer amortization schedule which means that in the long run you will spend more money on the property than you initially would have by the time you have fully paid it off.
Sometimes market conditions can also take a dive after you go through the process of doing a cash-out refinance, and you may wind up owing more money on a property than the market values the property at.
In certain cases, this can result in you facing penalties from the lender, so you need to be careful before you refinance the property.
If You Are Ready to Invest
If you are ready to invest and are looking to draw on equity you have already built in your existing properties, let us help you explore the option of getting a cash-out refinance to leverage your portfolio today. All you need to do is click the link below to book a free strategy call with our mortgage team at LendCity.