Mortgage Refinancing Advice for Homeowners with Multiple Properties

Homeowners with multiple properties have many options when looking to refinance their mortgages.  When you have several properties this is called having a "portfolio".  The most important thing for homeowners with a portfolio is to understand the relationship between their outstanding loans and the interest rates on those loans. 

The Blended Interest Rate

The blended interest rate is the rate which you are paying across all your loans.  If you are able to refinance any of your existing loans at a rate lower than your blended interest rate then the refinance is worth doing, as you will then be paying a lower overall rate on your portfolio. If it is only possible for you to achieve a refinance rate above your blended interest rate than it would be better for you to wait until rates come down or until you can achieve a rate lower than the blended interest rate.  The blended interest rate is computed by relating the amounts of your outstanding loans to the rates on those loans.  A weighted average calculation is required to determine your blended interest rate.

Local Lenders Offer Options

Most homeowners use conventional financing to obtain their mortgages. These are offered through any number or commercial banks and lenders, with a many different rates and terms.   The largest drawback of using these lenders is that they often have a maximum amount of mortgages for one person. According to standard guidelines, the maximum number of mortgages properties is limited to four.

If you are a multiple property owner you'll have to use local lenders who do not have as stringent guidelines. Local lenders usually hold their loans rather than selling them on the secondary market. As long as you meeting the lender's income and qualifying guidelines many local lenders will allow an unlimited amount of loans to one borrower. Be prepared to spend more money on origination fees and higher interest rates with your local lender. They don't do as many deals as the commercial banks and like to make higher margins.

Private and Hard Money Lenders

Another mortgage refinancing option for homeowners with multiple properties is private financing. This type of financing is also known as hard money. Hard money lenders have very few underwriting guidelines. They are asset based lenders and make loans based wholly on the value of the property being used as security for the loan. Private and hard money loans feature higher than market interest rates and equally high origination fees. Expect to pay anywhere from 2 to 4 points to the lender in fees, with an interest rate between 12 and 18 percent per year.

Private money lenders will only lend up to 50 percent of the value of the home which means you'll only be able to borrow about half of what the home is worth. Additionally, these loans are meant to be short term loans. A typical hard money loan lasts only 1 to 3 years, after which you'll need to pay them off or refinance it. If you're planning a short term rehab or need a bridge loan before you sell a property, these can be great options for you.