Want to see questions 1-3 from this real estate investor? Click the following links to see our past blog posts answering some very important questions. Questions 1 – 2, Question 3.
Question 4) I hear interest rates for cash out refinances are higher in comparison to purchase and non-cash out refinances, is this true?
Yes and no.
Yes in that all initial loan terms, mortgage interest rates and lender fees are determined based on the risk assessment and the individual type of the loan transaction, and cash out loans are deemed the riskiest. The higher the risk, the higher the loan terms.
No in that when finalizing loan terms and interest rates, borrowers have the choice of lowering their interest rate by increasing their loan costs. Imagine a sea-saw in a neighborhood playground, as one side tilts up (loan costs) the other side tilts down (interest rates) and visa versa. So if and when a borrower wants a lower interest rate than present, they can always obtain one by increasing their loan costs.
If all things are kept equal, meaning you choose not to increase your loan costs, interest rates work like such:
Purchase Loans = Lowest Rates as they are classified as the lowest risk in comparison to other loan types primarily because of the down payment money is brought to closing when buying a home as opposed to the other transaction types.
No Cash Out Refinance Loans = Low Rates. Just not as low as purchase loan rates as no cash out refinance loans are classified as the 2ndlowest risk in comparison to other loan types primarily because there is both no money being brought to closing or received at closing – it’s basically a push or a tie. Think of no cash out refinance loans having interest rates of .125% – .250% higher in comparison to purchase loan interest rates.
Cash Out Refinance Loans = Not as Low of Rates. This is still great financing, and considered the 3rd riskiest loan type. These rates are still good, just not as low as purchase loan rates or no cash out refinance loans. These types of loans are risky primarily because there is money being received at closing increasing the current loan amount and therefore risk assessment. Again, it’s a push or a tie. Think of cash out refinance loans having interest rates of .125% – .250% higher in comparison to no cash out refinance loans and .250% – .500% higher in comparison to purchase loan interest rates.
If you’re curious as to how conventional investment interest rates work in comparison, simply take the above explanation and continue the list from 1 – 3 to 4 – 6 with placing investment before each transaction type. And if that didn’t make sense, simply call us at 713-462-5465 or email us at loans@blinklending.com and one of our Lending Concierge’s would be happy to explain in more detail.
Question 5) What’s the maximum loan to value as a percentage that I as a Real Estate investor can cash out refinance after 6 months?
Investment Cash Out Refinance Loan = when refinancing an investment property and receiving more than $2,000 at closing, you are able to finance up to 75% of the current property’s appraised value, or commonly referred to as 75% LTV.
Investment No Cash Out Refinance Loan = when refinancing an investment property and not receiving more than $2,000 at closing, you are able to finance up to 80% of the current property’s appraised value, or commonly referred to as 80% LTV.
We hope this real estate investor Q&A helped, but if not, please don’t hesitate to let myself or any members of the Blink Team know how we can help. That’s what we’re here for.
