Refinance Question from 7 yea ARM to 30 yr DSCR

[Nathan Frost]

Hi, I am open to advice here. I have a 7 year ARM at like 8.8% interest rate. I am in the process of refinancing it which could lower my payment $200 per month but hopefully $300. At won't point is the refinance not worth it? It will raise my balance on my mortgage about 12-13k which I think is a lot for not taking any cash out. However, if I save $2k a year from lower payments I would break even in 6 years.

Is it better to keep the low balance with 8.8% rate or refinance to a 30 year loan and get the lower payments and more cash flow?

[Greg Scott]

To me, cashflow is basically like having insurance for your investment. If you lose your job or have some other financial hit, your investments carry on.  I always want to have positive cashflow.  On the other hand, there are some things you didn't mention though that make your "this or that" choice curious.  

First, how many years until your loan adjusts?  If you are getting close to year 7, it might make sense just to wait.

Why are the closing costs $12-13K?  That is a lot. If it is because you are buying your rate down, that is effectively pre-paid interest.  You could approximate the same thing by taking $6K and putting it in a savings account you don't touch.  If it is because that is what your lender charges, I would seek alternatives.

I'm also wondering why you went the DSCR route. You can usually get more favorable loans with agency debt, lower interest and longer terms.