Refinancing may refer to the replacement of an existing debt obligation with another debt obligation under different terms.
Merits of Refinancing
・Improving monthly cash flow
・Selecting fixed interest rate to avoid floating interest rate risk
・Starting new transactions with new banks
・Changing to corporation name
Demerits of Refinancing
・Costs for prepayment loan, mortgage settlement, setting up new mortgage
・Relationship with the original bank goes bad
◆Things to watch out for
Monthly cash flow will be improved with a help of refinancing since you are getting a better loan condition.
However, deciding to refinance only because the “interest rate” is better might be dangerous.
Because the current bank might still give you a loan for the next property that you are thinking to purchase yet refinancing would kill the chance. You cannot deal with the current bank anymore.
For a loan rep, your refinancing is something they don’t like to see.
Loan amount is huge in real estate investment so if your loan amount decreases rapidly, your current bank won’t feel good about it. You should know that you cannot get a loan from the bank if you are going to do refinancing.