Payoff vs. Refinance vs. Do Nothing
I have rental property that I have owned for 14 years. It was our first house. We got an FHA ARM 30 year, which is based on the 1 year t-bill (rate + 2). Its been a great ARM easily beating out the fixed rate in most of those years. The market was poor back when we moved, so we (luckily) held on to and rented it. Finding renters in my area is not a problem. Loan balance is 67k.
Option #1 Do nothing and ride out the ARM. The ARM is currently at 4.875, due to adjust in May. It can only go up (or down) 1% a year, but it looks like it will go up (t-bill currently approaching 4.00). In 2007, who knows, could go as high as 6.875. Its capped at 11.5%. This loan also has PMI of about $28/month. Because its an FHA loan, the PMI cannot be removed.
Option #2 Refinance at 10 or 15 years fixed. Because its a rental property, the best I have found for 10 years is 5.25, 5.75 for 15. Both are with one point. Its about $3000 for closing based on the estimates I've received.
Option #3 Pay off the loan. I have enough cash available after recently moving and selling house #2.
Let me know your thoughts.