Can I refinance all my properties into one loan?

Having two mortgages isn’t something new as most people would think. People frequently decide to get a second mortgage when they have enough home equity. They might use this money to settle a debt, fund a business launch, send a child to college, or make a sizable purchase. Others will use a second mortgage to remodel or build additions, like a pool, to increase the value of their home or land.

But managing two mortgages can be more complicated than managing one. Fortunately, there are methods for combining or consolidating two mortgages into one. However, the consolidation procedure itself may be challenging, and the math may ultimately determine if it was unjustified.

Having two mortgages is a frequent circumstance that can be made easier by consolidating them into a single loan. It could be necessary to work with a knowledgeable broker who has experience doing this to combine two loans into one. However, consolidation has associated costs that may prevent it from being a wise choice in the long run, even while it can simplify your finances and save you money over time.

The last ten years have seen significant changes in the mortgage sector. In the past, almost anyone could obtain a mortgage, even for a large sum. Interest rates were higher then, but lending requirements were less stringent. Today, it is more difficult to qualify, and interest rates are only beginning to rise from their historic lows.

Perhaps you obtained a second mortgage, often known as a home equity loan, when interest rates were high. But, of course, that is merely one of the reasons you could think about consolidating your debt. But ought you to? Do you understand it? Or would keeping the loans separate be preferable?

Reasons why you need to Consolidate Your Mortgages

1.    Reduce Your Interest Rate

Mortgage interest rates were substantially higher on average about 15 years ago. For instance, the average 30-year rate peaked at 6.74% in mid-June 2007. However, rates were less than half the rate in 2007 in July 2021, averaging 2.87%. A reduced interest rate could result in thousands of dollars in loan savings. The less you pay overall throughout the loan period, the lower the interest rate. A mortgage calculator can be helpful in creating a budget for these expenses.

2.    Eliminate the Risk of a Variable-Rate Mortgage

Homebuyers could be persuaded into taking out a variable-rate mortgage because the first monthly payments are frequently lower than they will eventually be. Customers may discover that the payment will likely become unaffordable for their household as the promotional period ends. You won’t have to worry about making a much higher payment later on in the mortgage if you combine all of your mortgages into one fixed-rate mortgage.

When interest rates are relatively low, it is an especially wise decision. Even though last year might have been better, the present is still favorable. Since 2015, the Federal Reserve Board has increased mortgage interest rates nine times; however, the most recent increase was in December last year, and no additional increases were anticipated in 2019.

You should consider all the expenditures over time when refinancing instead of just comparing monthly mortgage payments since this will likely result in you getting a bad deal.

3.    Pay Off Your Loans Faster

Consider a shorter loan in addition to paying off both loans at once. You will pay less interest overall and own the property or properties sooner. However, the monthly installments will undoubtedly increase.

Consider the $1,150 monthly payment for a 30-year fixed-rate mortgage on a $250,000 house as an example. If you convert it into a 15-year loan, the monthly cost soars to $1,811; however, over time, it will be less expensive because you would make fewer payments in 15 years than you would in 30 years and pay about $88,000 less in interest.

4.    Lower Your Payments

This makes sense only when you are already in over your head. The issue is that, over time, lowering the payment amount frequently results in higher costs for you. 

A smaller portion of your payment goes toward principal in the first few years of a new mortgage because interest is often front-loaded into most mortgages. However, resetting the loan frequently results in higher interest costs in the long run. Serial refinancers struggle to pay their mortgage more because of this.

Benefits of Financing Multiple Rental Properties

Compared to other assets, real estate investing can generate a consistent cash flow stream that increases monthly income. Not to mention that it offers tax benefits and acts as an inflation hedge.

You could feel ready to jump in headfirst by increasing your holdings once you’ve dipped your toe into real estate investing by getting your first rental property. You can benefit from extra revenue streams without waiting until you’ve paid off the first home when you finance numerous rental properties.

Take the first step toward getting the right mortgage financing advice today at Aurum and Sharpe. They are easy to connect and work with and will answer all your questions accurately. Visit their website to get started.

Challenges to Financing Multiple Properties at Once

While simultaneously financing several rental properties has its advantages, you’ll also find some disadvantages. For example, lenders may be more reluctant to approve a mortgage if you already have one debt. In addition, lenders might view you as a higher risk, which means there will probably be more criteria. The usual obstacles you can anticipate encountering include:

• Banks that won’t make more than one mortgage loan at once
• Greater down payment needs
• Higher requirements for cash reserves
• A minimum credit score of 720
• Higher rates of interest
• A maximum number of properties you are permitted to finance

Expect to find it more difficult to locate a bank willing to finance other properties after you have one or more mortgages in your name. However, they exist; you may only need to look a little further.

Loans for Multiple Investment Properties

Although financing numerous properties is challenging doesn’t mean you can’t do it. On the contrary, it’s not implausible for investors with solid credit histories, sizable down payments, and a track record with their current properties to be approved for numerous loans.

Although many lenders may allow you to finance multiple properties at once, most will have some cap. Investors can frequently obtain up to four mortgages using conventional methods. But other initiatives and financing may assist borrowers in purchasing ten or more homes.

Traditional Mortgage

The maximum number of conventional mortgages a person may obtain isn’t always fixed. The challenge is finding a bank that will grant you as many loans as you need. In general, a person with solid credit and a sizable down payment should anticipate being able to finance up to four residences through conventional financing. Additionally, you might be able to finance more than four if you successfully find the correct lender. Similar to a traditional mortgage application process, you must fulfill the prerequisites set forth by each lender:

• Debt-to-income ratio
• Credit score
• Down payment
• Proof of income
• Cash reserves

Lenders will probably want to ensure that your current investment properties are performing well before determining whether to award you up to four mortgages. If you’ve had any foreclosures or missed payments on current or previous mortgages, they might not approve any more loans for you.

Another thing to think about is that the bank will take a more considerable risk on you the more loans you take out. You can, as a result, be faced with a higher mortgage rate and stricter credit and down payment requirements.

Blanket Loan

A single mortgage that covers multiple properties is known as a blanket mortgage. Using this kind of loan, investors can buy several rental properties without needing to get funding separately. 

A blanket mortgage is secured by the properties the investor purchases, much like a standard mortgage. However, these loans can be split up so that each property is used as collateral for a portion of the loan because they are designed to finance numerous properties. In this manner, the investor can sell a home without repaying the entire debt.

These loans are typically intended for developers, builders, flippers, and investors. You most likely cannot use a blanket loan to buy a second home in addition to your principal abode.

The borrowing process may be streamlined with blanket loans, enabling investors to take out just one loan instead of numerous. Additionally, they allow borrowers to make one monthly payment instead of several. Nevertheless, if you can’t make the payments on a blanket loan, all your assets are in jeopardy. In addition, these loans frequently include higher fees and interest rates as well.

The amount of homes you can finance with a blanket mortgage is typically unrestricted; it all depends on how big of a loan your lender would accept you for. Your lender will determine details like the required down payment, minimum credit score, and cash reserves. Investors can probably find a commercial bank that makes these loans even though many financial institutions opt not to.

Portfolio Loan

The options offered by Freddie Mac and Fannie Mae won’t be sufficient for investors who wish to finance more than ten properties. A portfolio loan may be the best option in those cases.

You must use your property as security to obtain a loan, just like a typical mortgage. But unlike conventional mortgages, the banks don’t dispose of the loan; instead, they keep it in their portfolio for the duration of the loan. The lender also doesn’t have to insist that borrowers fulfill conventional mortgage requirements since they won’t be selling the loan.

These loans might have benefits, like less stringent credit, down payments, and debt-to-income ratio specifications. However, because the lender is exposed to more risk, you can anticipate paying a higher interest rate and high costs. Also, be aware that it’s probably difficult to find these loans. Nevertheless, banks frequently use them to reward long-term clients who have established themselves as reliable borrowers.

How to Consolidate

It would be best to grasp a few things about your existing debts to comprehend what happens when you combine. If you discover that your second mortgage, also known as a cash-out loan, was used to withdraw cash from your property for some reason when you attempt to consolidate loans, it may increase the cost of the new loan and lower the amount for which you qualify. According to lenders, cash-out loans are more expensive since the borrower is statistically more likely to default on the loan if they run into problems.

The rate/term refinancing is another option. Simply said, this form of loan changes your present loan’s terms and interest rate. Because the borrower isn’t keeping any money for himself or lowering the equity they have in the property; the lender views the loan as safer. Perhaps you recently refinanced when interest rates on mortgages hit an all-time low. A mortgage calculator is a valuable tool for creating a monthly payment budget.

The lender will handle all of the challenging paperwork associated with loan consolidation. Being an informed consumer is your responsibility. Talk to multiple people instead of just one.

The best action is to individually chat with as many as three or four lenders because consolidating two loans involves more than a conventional home mortgage. In addition, you could seek advice from your bank or credit union, a mortgage broker, or reputable business people in the field.

Of course, find out if the new loan will be a rate/term refi or a cash-out loan. Is the loan at a fixed or variable rate? 15 years or 30?

When choosing a lender, you should go for a lender that is easy to connect and work with, just like Aurum and Sharpe. They are easy to relate to and will guide you through each stage of your loan acquisition. After you decide on a lender, they will guide you through the procedure.

Never sign anything before reading it; be sure you are familiar with the payment schedule.

Experts claim that if your loan is a cash-out loan, there might be a method to change it to a rate/term refi after a year. Consolidate the loans as a cash-out, but obtain a lender credit that covers all transaction fees. Wait a year before refinancing once more. It is not a cash-out loan at that moment because you are only refinancing one debt. Since you will hold the loan for longer, you may now spend money on points to reduce the interest rate. (They usually advise against doing this unless you think interest rates will remain constant or decline).

Let’s examine one illustration: You obtained a home equity line of credit ten years ago or more, and during the draw period—the time during which you could “draw” from your credit line—you were making modest monthly payments of $275 on a $100,000 line of credit.

The draw period of this loan changed into the payback period after ten years; for the following fifteen years, you must pay off the debt like you would a mortgage. However, you certainly didn’t anticipate that the $275 installment would balloon to a $700 one that might go higher if the prime rate rises.

You might be able to save more than $100 a month by combining the two loans and locking in your interest rate rather than risk seeing it rise if the price increases. On the other hand, you may desire to pay off the loans more quickly and benefit from improved terms.

The Bottom Line

Never choose to refinance your debt or consolidate your loans based only on the lower monthly payment. Most of the time, taking out a new loan will cost you more in the long run than simply paying off your current debt. Millions of customers continue to mortgage their futures and retire with tens of thousands or even hundreds of thousands less.

Instead, estimate the length of time you anticipate staying in the home and compare the costs of your present mortgage(s) to the new mortgage and any additional expenditures for the new loan throughout the loan’s tenure. Consolidation is a smart move if it reduces your overall expenditures.

Make sure that consolidating your mortgages will help you in the long term before you do it. Consider the overall loan amount you’ll have to pay and the rate at which your equity will grow. Thinking only about the now is short-sighted. Every year, it costs households millions of dollars and is overly simplistic. In a perfect world, the term of the new loan should be the same as or less than the terms of the current loans.

It may not seem easy to finance numerous rental homes, and there are undoubtedly more requirements than when taking out a single mortgage. However, given the range of possibilities, investors with strong financial backgrounds will likely find a strategy that works for them. Speak with a Home Loan Expert today if you’d like to learn more about financing rental properties.

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