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3 Common Rental Property Refinancing Pitfalls

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As I’m sure you know, mortgage rates continue to hover around record lows.  The lousy economy and stagnant real estate market have conspired to keep a lid on rates, and this applies to new mortgages as well as refinances.  So yes, now is an excellent time to refinance your rental property mortgage, but you must be careful to avoid some common pitfalls.

One common error is to focus solely on the interest rate.  Yes, this is the most important consideration, but don’t forget to factor in things like closing costs, the terms of the loan, and even the reputation & credibility of the mortgage provider.  It’s always best to get at least 3 quotes – complete with Good Faith Estimates (GFEs) for all 3 – so you can compare all the variables and make an informed decision.

Another error is forgetting to factor in the property valuation.  Any time a new mortgage is originated, whether it’s an initial mortgage or a refinanced one, the lender will require a valuation on the underlying asset.  In other words, it’ll be subject to an appraisal.  Sometimes this is not a worry, but in today’s market, property values are generally depressed.  And if the value of your property has dropped, there might not be enough equity in it to enable the refinance to proceed.  So you might want to have your own appraisal done before you do any legwork on the refinance.  This way, if your property valuation won’t cut it, at least you’ll know before you spend time doing mortgage research and getting quotes.

Finally, another common mistake is trying to time the market.  Many people hold off locking in a rate in the hopes that rates will drop another tick.  This is a dangerous game, because rates could go in either direction.  Plus, rates are historically low right now, so whether you get a rate of, say, 5.1% or 5.25% is not material…either way you’re golden!

In the final analysis, now is a GREAT time to look into refinancing your rental property.  Just be aware of the aforementioned pitfalls, and be realistic about your expectations.  In the end, you’ll be glad you did!

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