Lender Credits on investment property loan
Hello smart people of the internet!
I bought my first property several years ago (property A). I house hacked for awhile with some roommates, until I got married and now my wife, 3 boys, and I have outgrown property A. I'm in the process right now of doing a cash out refinance so we can put 20% down on a new home (property B), that is a fixer upper. We plan on living in property A, until renovations are complete in property B. As such, my loan officer has said we need to refinance property A, as an investment property, since property B will be my primary residence. I was chatting with him today and we started talking about lender credits. I'm rounding, but my new loan on property A should be around $200,000 at 3.125% and I'll say about $4,000 in closing costs. I haven't decided yet on whether or not I am going to sell the home or keep it as a rental.
If I do decide to sell property A after we move into remodeled property B, I am trying to understand the advantages/disadvantages of lender credits. The way I understand it right now, is that I could receive a lender credit of 1%-2% that would cover a portion of, or all of my $4,000 worth of refinance closing costs on property A. In exchange for this credit, my interest rate would go up from 3.125% to 3.5% or so. It's a difference of $41 in monthly mortgage payment, with this example on a 30yr loan. Obviously I'd be paying much more if I took the loan to maturity, but if I did plan on selling property A as soon as the renovations were complete on property B (6 months or so), I would think that would be a home run for me and not something I would necessarily want to talk to my lender about. I'd pay $41/mo x 6 months = $246 to get them to cover $4,000 worth of closing costs.
Admittedly, it feels like it is too much of an ace in the hole for this to be true. So people of the internet, what am I missing? Does this sound like a good strategy if I do sell property A? A follow up question is whether or not I would be subject to capital gain taxes since the loan will be considered an "investment property"? Does anyone have any thoughts or guidance on this?
Thanks in advance for any and all thoughts!
-KC Morgan