Refinance to Buy More Property

Many people only consider getting a loan to refinance a mortgage if they want to lower their monthly payments, i.e., refinancing when interest rates drop, or they want to take out cash for debt consolidation, i.e., to pay off high-interest credit card debts, or if they want cash for home improvements.

There’s another excellent use for the equity, difference between what your home is worth and the amount you still owe on it, that you have in your home, and that is to use it as a down payment on another piece of property. The other piece of property can either be a rental (income) property or it can be for a second | vacation home.

Using the equity in your current home to help purchase a rental property can be an excellent way of building up a nest egg of real estate that can see you through the later years of your life.

There are several benefits to using the equity in one property as the down payment for another property. For one thing, if the majority of the equity has been created by an overall increase in property values, then the extra money is basically “found” money. If there is sufficient “found” money in your home, then the down payment on an income property can be sufficient that rents will cover the monthly mortgage payments, allowing you to build up equity in the rental property with little or no additional outlay on your part.

Also, the interest you pay on the refinance of your original property is tax deductible, making the new purchase even more affordable. As equity builds in the income property it may be possible to refinance the mortgage on that property and use that equity to increase your number of rental units to an even greater degree.

If building a real estate “empire” isn’t for you, then using the equity in your primary residence to buy that vacation property or that second home you’ve always dreamed of may still be an excellent investment. This is especially true because the interest paid on the refinance of your primary property should be tax deductible.