Benefit from Low Interest Rates By Refinancing and Building an ADU

Currently, mortgage interest rates have reached an all-time low, prompting a lot of homeowners to refinance. Borrowers with good credit are now able to get a 30-year fixed rate loan at around 3%. One way to take advantage of low interest rates is to refinance and take out cash to build an ADU. Here’s an example for a homeowner who got a 30-year mortgage five years ago:

  • Amount of Loan: $500,000
  • Interest Rate: 4%
  • Monthly Payment: $2387
  • Mortgage Balance after 5 years: $452,243

The homeowner can refinance and take out money to build an ADU:

  • Amount of Loan: $565,000
  • Interest Rate: 3%
  • Monthly Payment: $2382
  • Cost of Mortgage: $3000
  • Money Available to Build an ADU: $109,757  ($565,000 – $452,243 – $3000)

After refinancing, the homeowner has about the same monthly payment and $109,757 to put into the construction of an ADU. This is typically enough money to build a garage conversion ADU or a JADU (a detached ADU would cost more). In many areas in California, the ADU can be rented for at least $1000 per month. Refinancing may be a great way to add an ADU to your property!

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