Have you ever heard of refinancing? This is one of housing credit solutions most used by investors and today we are going to explain everything about it.
Refinancing, also known as mortgage-backed credit, is a financial transaction in which the owner uses his property as collateral to obtain a loan with better conditions or even to reinforce the financed value.
This type of credit gives banks a greater guarantee of payment and can be an option for those who have a property that has already been paid for or has a good equity value, which is the difference between the value of the property and the amount of the loan.
But speaking in numbers, what does this type of credit translate into?
Let's imagine that you own a property worth €200,000 and currently have a debt amount of just €100,000. You are thinking of buying an investment property for €150,000 but you don't have the capital to purchase it.
In this case, by refinancing your first property, you can increase the debt up to 70% of its value, which in this case would be €140,000.
This way you could increase the loan by €40,000 and you would have this amount available for your new investment.
How can I request refinancing?
Before going to the bank to request a loan with a mortgage guarantee, it's important to confirm that you meet the requirements to do so, particularly in terms of age and percentage of the LTV (Loan to Value) rate.
Once these parameters have been met, the banking institution will evaluate your property and your profile, in order to understand whether you have the financial capacity to support the monthly installments of the credit you are about to take out.
When opting for this type of financing to purchase a new property and since the banking institution keeps your current property as collateral, you can also enjoy lower interest rates.
In any case remember that the failure to comply with the agreement could lead to the loss of your initial property, which is why this type of financing must be done with great caution.
Everything clear? If you still have any questions, contact us!