Cash out refinance question

[Brian Oaks]

Does anyone have specific criteria they look at when doing a cash out refi? The purpose would be to buy another investment property.  I have about 10 years left on the mortgage currently.  The new terms would be 30 year, 1 full % point less in interest, but the payment increases by $250 per month.  It would cut the current monthly cash flow in half on that rental property.  Thank you! 

[Stephanie P.]

Originally posted by @Brian Oaks:

Does anyone have specific criteria they look at when doing a cash out refi? The purpose would be to buy another investment property.  I have about 10 years left on the mortgage currently.  The new terms would be 30 year, 1 full % point less in interest, but the payment increases by $250 per month.  It would cut the current monthly cash flow in half on that rental property.  Thank you! 

Hey Brian

It's all a math problem that only you can solve.  I tell borrowers all the time that we treat these loans like they're Plinko on The Price is Right and after all the questions are answered (like the pegs on the Plinko board) you'll know what kind of loan you want and we'll know where to place it.  Essentially, you have look at YOUR goals and work backwards.

• Do you care that you're eating up equity or is it more important to have the asset working for you?
• Is the plan to keep the asset long term or are you thinking of selling anytime soon?
• Will the money you receive from the refinance help you make more money on another cash flowing property or will it help you renovate the existing property to increase the rents or will it just make it easier to purchase another property faster or will it just make you feel better having cash in the bank in uncertain times?  All are valid reasons to refinance BTW
• Are you okay with reduced cash flow in return for cash up front?

Know that the interest rate matters less than you think because the other uses of the cash should outweigh it.

Hope that helps

Stephanie