There is a lot that can happen when you’re investing in real estate. Plans can change, the market can shift, contractors can fall through. It’s perfectly natural for things not to go the way you expect sometimes. And in the event that things go very wrong with your private loan, there is always the option of refinancing.
Refinancing does not have to occur in the event of an emergency. You might decide to refinance your loan because you want to shift directions towards a longer-term financing operation. Or maybe you want to get some quick cash to remodel your home. There are lots of reasons as to why one might refinance their investment property, and there are many refinancing options to choose from that can satisfy those needs.
First of all, what does it mean to refinance a loan, and why might knowing this type of information be important to a borrower even if they don’t plan or expect to use this option? Simply put, refinancing a loan involves changing some of the financial details of a private loan. This could come in the form of asking for a more lenient interest rate, changing the frequency of loan payments, or even altering the term life of the loan itself. Depending on what you might need, choosing to refinance a private loan can alter your investment either a little bit or entirely.
Let's give an example. One of the most common scenarios in which borrowers choose to refinance their loan is when they want to extend their financing time-line from a short-term plan to a long-term plan. A common example is transforming a short-term Hard Money loan into a 30-year loan. This is somewhat of an extreme transformation as it in some ways changes the nature and purpose of the loan dramatically, but it’s such a regular occurrence that private lenders, like Stratton Equities, are capable of making a smooth transition.
Additionally, the financing itself must also change when transforming a loan. Oftentimes, borrowers ask for a lower interest rate and less frequent payment cycles in addition to refinancing a loan to extend its lifespan. This is to make the transformation more appealing for both the borrower and the lender. From the perspective of the borrower, higher interest rates are manageable regarding short-term loans, but those rates would be far too expensive, unmanageable, and disproportionate when transitioning into a long-term loan. From the perspective of the lender, they need to preserve their initial investment and have this transformation not cost them too much. So, there is some compromise to be had between the two parties, but in the end, the refinanced loan will still serve both the lender and the borrower to the best of its abilities.
Aside from refinancing a loan to extend a loan's lifespan, there are also other options to consider such as using the opportunity to acquire some quick cash. Because the act of lending involves one party offering another party some money in exchange for a future repayment, the use of the investment can at times extend beyond the initial proposal. Sometimes borrowers need some extra cash to remodel their property. Sometimes they need some equity to consolidate their debts. Either way, refinancing a private loan offers the opportunity to acquire some quick capital for the borrower such that their needs can be met. And in these types of refinancing situations, not a whole lot has to change within the loan agreement when compared to the loan transformation mentioned previously. For the borrower, they can use their loan to leverage some extra cash to use elsewhere as their loan relationship with their lender offers this as a possibility.
In the end, there are lots of scenarios and options to choose from if you need to refinance. The reasoning could be a dramatic one, an emergency, or even a simple, quick fix. Either way, refinancing a loan is standard practice for any lender, and at Stratton Equities, we strive to provide the best serviceable options. Just remember, as a borrower, knowing about all your possible options and alternative choices can help you succeed in the long run, even if just a little bit.
For more information on how to refinance a loan, visit Stratton Equities today.