Extra mortgage payment or keep the cash?

11 Replies

Hi everyone,

we are not sure what do, we have about $7000 in cash from our rental cabin this summer. We hope to buy a 2nd property in the next 6-8 month. 

My questions is what is best to keep it on the bank account or do an extra payment? We need refinance and pull some cash out when we buy the 2nd property.

Any suggestions?

Thanks

Joakim

if you need to refi why would you make an extra payment? 

Originally posted by @Joe Villeneuve :

Buy and FEFI

 Dumb question, what's FEFI?  Is that just a typo for refi?  I can't find anything with my Google skills on that. :)  Thanks!

Originally posted by @Travis Beehler :
Originally posted by @Joe Villeneuve:

Buy and FEFI

 Dumb question, what's FEFI?  Is that just a typo for refi?  I can't find anything with my Google skills on that. :)  Thanks!

 yes

Originally posted by @Joe Villeneuve :
Originally posted by @Travis Beehler:
Originally posted by @Joe Villeneuve:

Buy and FEFI

 Dumb question, what's FEFI?  Is that just a typo for refi?  I can't find anything with my Google skills on that. :)  Thanks!

 yes

 Ah ok.  I thought that might be the case, but was thinking "WTF is FEFI??"  :)

Personally everyone has a different strategy. My husband and I are in the "BUY" strategy. So we don't pay down our loan. We save our personal "surplus" along with our house to buy new houses. WE don't refinance it out because we want there to still be equity and paying itself off.

Originally posted by @Travis Beehler :
Originally posted by @Joe Villeneuve:
Originally posted by @Travis Beehler:
Originally posted by @Joe Villeneuve:

Buy and FEFI

 Dumb question, what's FEFI?  Is that just a typo for refi?  I can't find anything with my Google skills on that. :)  Thanks!

 yes

 Ah ok.  I thought that might be the case, but was thinking "WTF is FEFI??"  :)

 Don't you know?  FEFI is the  Nursery Rhyme version of a REFI...as in "FE, FI, Fo Fum,...I ..."

We are big proponents of paying down debt *when* we do not have a higher/better use for funds.

If you are planning on purchasing in the next 4-6 months and will have to refinance an existing property to complete that purchase, then there is likely limited benefit to making a pre-payment on the existing note/mortgage.   However, you should run through the math just to make certain.

As an example:  We refinanced a duplex last year - we broke our existing mortgage, moved to a new lender, and pulled extra equity out of the property.   The note on the mortgage was a variable rate @2.9% with an early discharge penalty of 3-months interest (pretty low ... a fixed rate note would have carried a much larger penalty).  The new mortgage note was going to be @2.4% (variable rate) and 30K larger than the one we were discharging early.   Nine months prior to our refinance, we made a pre-payment of $12K knowing full well we would be pulling that money back out when we placed the new mortgage.  However, the interest savings from the prepayment offset the discharge penalty incurred when we refinanced.   The key was that we had no better use for the funds prior to the planned refinance.

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Thanks guys,

Happy holidays

Joakim

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