Depending on where you’re at in the life of your land loan, there might be a few things that you can do to save money in the long run, like refinancing!
The first thing you should do, which is the idea we’ll explore today, is to look at your refinancing land loan options. Refinancing your loan might be an excellent way to put a little extra money in your pocket for the short term and reduce the amount of interest you pay over the life of the loan.
Let’s take a look at some of the basic considerations that can help you make the right decision in this process.
Refinancing Land Loan: Is It The Right Choice?
The most important factor that you should look at is the interest rate you might be able to acquire after refinancing.
If that rate is lower than your current rate, you might be in a good position to refinance and put yourself in a better financial situation. The factors that contribute to this rate are the market, the value of your land, and your current credit in relation to the credit you had when you took out the loan.
If your credit score is looking a lot better than it was when you took out your land loan, you might be able to get a significantly lower interest rate after you refinance. Depending on the size and life of your loan, that difference could be tens of thousands of dollars.
Getting the Cash Difference
Another key part of refinancing is that you have the ability to get the difference between the appreciated value of your land and the value of your old mortgage in cash.
If your mortgage has a remaining balance, and your property is now worth more than what you paid for it, you can do a cash-out refinance to put cash in your pocket. For example, let’s say that you have a remaining mortgage balance of $300,000 and your land is now worth $450,000, after taking into account your loan-to-value amount and any closing costs, your new loan would give you a substantial amount of cash at closing.
Now, that money could be used for whatever you like. At the same time, pitching that remainder back into the principal value of the loan can reduce your expenses drastically over time.
Not only will your principal payments be lower each month, but the fact that there is less value in the principal amount to be paid back means that your interest won’t accumulate nearly as much over the life of the loan.
Another popular scenario is to borrow on land that has been paid off. You can borrow a percentage of the land value to make improvements, which in turn, will add a tremendous amount of value to your property.
Speak with a Financial Advisor Before Refinancing
While it may seem like an objectively good idea to pull the trigger on refinancing your land, it’s always best to talk with someone in your area who understands the market and can give you their take on how the decision might affect you.
There’s nothing wrong with taking a step back and asking for a little guidance, especially when it comes to matters dealing with significant amounts of money.
Need a Little Help with Your Loan?
Looking at your refinancing land loan options might be a little complicated at times. We’re here to help you with any questions you might have throughout the process.
Contact your local Land Professional for more information regarding land loans!