Is it smart to refinance right now?

6 Replies

I have a refinance question, My first rental that I bought is a 3/2 that I currently owe just under $30,000 on. I have owned it 5 years, and rent is $900/month. I am in the same boat as most people as the down payments are getting harder to come by as I grow. I was considering refinancing, the house is worth about $80-90k so I could potentially pull $38k out to use on future purchases. But this house does well for me with the low mortgage payment of $275. Is it smart to go back to a 15 year note and add $38k to the mortgage in turn cutting down on my margins? Thank yall for the advice!

It depends... what kind of deal can you get if you take it out?

can you cover the lost of cash flow on y our first rental when you refinance and make additional cash flow on top of that with a new deal?

Also if you go to a 30 year note it would lower your monthely payments.

We did this with one of our properties. I was surprised when we were given a much lower interest rate than we had been paying. We refinanced from a 30 year (5 years already paid) for a new 30 year note. The monthly payment only went up about $50 a month (but was still less than we had been paying with our "extra" principle payments). It made sense for us. We pulled out enough to be able to purchase another property outright. The new property needs work but it is something we can manage. I think refinancing can be a good thing IF you refinance and use the money for another asset. Where people have problems is when they pull out cash to fund vacations or pay of credit card debt.

@Hunter Woolsey

You could do a  30 year cash out mortgage as well, to not impact you as much. Rates are low. If you cash out to purchase more property, it is worth the investment, in most cases. How much will the next property then cash flow?  

I see the benefit of extending out to 30 years to keep my cash flow higher. I was trying to get the property paid off sooner rather than later, but right now it seems more beneficial to use the cash to get into a couple new properties.

You could either do as others have already suggested and refinance with a new 30 year mortgage or you could look at getting a Home Equity Line of Credit. Unlike with a cash out refinance you pay interest only on the amount of money that is being used at the time. It works like a giant credit card.

To take advantage of the low interest rates you could do a streamline refinance to lock in a lower rate to lower your current mortgage payment on the outstanding principal you already owe and then get a low interest HELOC from a local bank or credit union at a lower interest rate than what you would be paying for the mortgage. Cash out refinances are great but HELOC are better in the sense that you pay for the amount of money you use. Whether you're using the full cash from a cash out or not you still pay for it every month.

If you have good credit and income a HELOC would be my choice every time. If you've had any credit events or derogatory credit history that drops your mid FICO score lower than a 640 then the cash out refinance is your best bet for getting approved and keeping a traditional / conforming low interest loan.

I hope this information helps and good luck!