Newbie investor doubts
Hello, I'm a newbie investor, who is interested in rental properties. I have a few questions.
1. Just to clarify something, Is cash-out refinance, possible only if there is a rise in your home price or if there is a less interest rate. ?
2. Imagine i bought a house for 1,00,000 and now the house price went up to 1,50,000. lets say i paid up 40,000 dollars , and i owe 60,000 back to the lender. I would like to know the amount ill be able to cash out with this rise in prices, and what would be the new loan amount. Im not sure how i can calculate this
I went though a couple of videos but i couldnt get a hold of it actually.
Most Popular Reply
Refi means refinancing, which means basically getting a new mortgage and the funds from that are used to pay off your original mortgage. (Even if you had no mortgage it is called refinancing.)
If you got a mortgage for the same amount, you’d just basically be replacing one for the other. You might do this because the interest rates are better, for instance.
Cash out is a colloquialism that refers to getting a bigger mortgage than your original and you pocket the difference. If the terms are basically all the same, but just the amount of the mortgage is bigger then you’ll obviously have a bigger mortgage payment every month. That is fine when you collect enough in rent to cover that and all other bills. Hopefully you still have a little left over after all this that actually goes into your pocket, that’s called cash flow.
Now you can take that money from the cash out refi and use it as a down payment for another investment. And so on and so on.
You’ll have to speak with your lender to find out what percentage of the value of the house you can get a new mortgage for. Let’s say it is 80%. In your case 1,20,000 using your notation or 120,000 using American notation. 60,000 would be used to pay off the original mortgage and you’d pocket the other 60,000 (minus some fees). And you’d have a bigger monthly payment.