If you took out a land loan and are unhappy with your rates and terms, you may be wondering if you can refinance your existing loan with another lender. The short answer is, yes. Refinancing your land loan may give you the chance to lower your rate and adjust your loan term to better suit your needs.
In addition, you may want to refinance to access your equity or achieve another financial goal. Read on for complete answers to your question, “Can you refinance land loans?”
4 Reasons to Refinance a Land Loan
The first step in any refinance is to get clear on why you want to change your existing loan and what you hope to gain from a refinance. Here are a few situations when you might choose to refinance a land loan:
1. Lower Your Rates
Maybe market rates were high when you took out your loan, so you want to take advantage of the lower rates on offer now. Perhaps your credit score has significantly improved and you can qualify for a lower rate.
Another way to get a lower rate is to shorten your loan term since shorter terms generally offer lower rates.
2. Pay Off Your Loan Sooner
If you signed up for a longer loan term, you may wish to refinance and get a shorter one so you save on monthly interest and total interest paid over the life of your loan. Just keep in mind that a shorter term likely means a higher monthly payment.
3. Lower Your Monthly Payments
Choosing a longer loan term is a simple solution if you're struggling to make your monthly payment, or you simply want more cash flow. Your rate will likely be higher, and you'll pay more total interest but this may be worth it for greater peace of mind each month.
3. Access Your Equity
Equity is the difference between what your land is worth and what you owe on your loan. Refinancing may give you the option to cash out some of the equity you've built up.
You build equity when your land appreciates while you pay down your loan. If you put at least 20% down on your land loan, then you are already off to a good start.
Types of Land Loan Refinancing
Once you know what you want to achieve through a land loan refinance, you can explore different refinance options and consider which lenders offer the solutions you're looking for. Here are three common refinancing strategies, which you may use alone or in combination:
Refinancing
A refinance means you completely replace your existing loan with a new loan. You get the funds to pay off your old loan in full and then start making payments to your new lender.
Re-Amortizing
Amortization is the way your interest payments are spread out over your loan term. In general, you pay more towards interest at the start of your loan and more towards principal at the end of your loan. When you re-amortize your loan, you simply choose a different loan term.
Repricing
Some lenders may give you the option to change only your rate while keeping your current term. This process is called repricing and can be a simple way to save money without getting a whole new loan or changing your lender.
Considerations Before You Apply
Just because you can refinance your land loan doesn't necessarily mean you should. Let's review some of the finer points that may go into your decision:
- Fees: Add up any fees, such as a loan origination fee, and be sure the total cost doesn't outweigh your potential savings gained through a lower rate.
- Other Costs: Find out if you'll need to order a new appraisal of the land, get title registration, title insurance, or anything else you need to pay out of pocket.
- Prepayment Penalty: Check if you have the option to pay off your land loan sooner than planned in case your income increases or if you find another source of funds.
- Conversions: See if your lender will let you use the equity in your new land loan to provide a construction loan or any other financing you may need in the future.
- Cash Rent Equivalent (CRE): Make sure you compare the annual expenses of your land (loan payments and real estate taxes) to the expected annual income of the ground per acre. Different terms and rates will impact your CRE.
Next Steps: Choose a New Lender
You now have a positive answer to your question, “Can you refinance land loans?” So, it's time to answer the next important question: How can you choose a lender that will offer an improved loan experience?
Whatever your reason for pursuing a land loan refinance, Credit Union of America is here to provide Kansans with great rates, generous terms, and friendly local service. We care about our community, and we know what you need.
You can become a member of Credit Union of America (CUA) if you're a resident, employee, or paid in select counties of the state of Kansas. You may also join if you're employed in the education field in Kansas, retired from education in Kansas, work for a CUA Employer Partner, or are a family member of an existing CUA member.
Click below to learn about the advantages of refinancing your land loan with Credit Union of America. Start saving money and enjoy personalized service today!
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