Higher Cashout Refinance with 30 years terms or 15 Years term ?

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Higher Cashout Refinance with 30 years terms or 15 Years term ?

Prakash Singh
Member since 2018 · 4 posts · 1 vote

My home worths $425K, I owe $200K. I am currently at 15 year 2.75% mortgage (11 Years left).

Option 1:

I can get a cashout refi at around 2.75% for 30 years with $125K cashout. I could use this $125K to buy 1 or 2 investment properties (with mortgage).

Option 2:

I can get a Cashout refinance at 2.25% rate for 15 years terms. But I won't be able to cashout as much (i can go upto $75K in cashout) because monthly payment will increase beyond I can afford my monthly mortgage for my primary home.

Which option is better if my ultimate goal is to just invest for few years and not to take any cash out from my investments.

I have a rental which gives me positive cashflow which I am keeping aside to use towards downpayment for new investments.

Sometimes I tell myself not to be greedy and go with option 1, pay higher interest rate for 30 years but get more cashout and build rental portfolio. Sometimes my mind says go with lower interest rate for my primary home and save some money on the interest I am paying.

Let's see what you geniouses has to say. Thanks in Advance.

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Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
5y

Hi @Prakash Singh, welcome back to the BP forums! 

In my opinion the difference between the two loan options is that you'd be paying 0.5% interest to borrow an additional $50k.   AND they would LET you extend your debt out 3 freaking decades (sidenote: how does that make any sense at all?  sub 3% interest rates for 30 years?)

For me, I'd take the additional $50k for 0.5% interest AND I'd love to have my home on a 30-year fixed rate loan instead of a 15-year, so Option 1 :) 

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  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    5y

    Hi @Prakash Singh, welcome back to the BP forums! 

    In my opinion the difference between the two loan options is that you'd be paying 0.5% interest to borrow an additional $50k.   AND they would LET you extend your debt out 3 freaking decades (sidenote: how does that make any sense at all?  sub 3% interest rates for 30 years?)

    For me, I'd take the additional $50k for 0.5% interest AND I'd love to have my home on a 30-year fixed rate loan instead of a 15-year, so Option 1 :) 

    1Reply
  • Cameron TopePro Member
    Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Option 1 hands down. 

    What do your average rental investments make 10-20%? 

    Even if you took the refi money and put it into stocks, you would still make a great return. 

    [email protected]832-770-7090
    1Reply
  • Fradel Barber
    Investor · Member since 2020 · 64 posts · 19 votes
    5y

    @Prakash Singh Curious, which lender are you getting 2.75% cash out refi with right now?

    1Reply
  • Lee Judd
    Lender · Logan, NM · Member since 2017 · 77 posts · 34 votes
    5y

    @Prakash Singh

    I'm going with @Will Fraser on this one. Take 30yr term. Half of a percent is nothing and you have the rate locked in longer. I think inflation over the next 30 years will be significant so you will be making today's payment with tomorrow's dollars.

    1Reply
  • Prakash Singh
    OP
    Member since 2018 · 4 posts · 1 vote
    5y

    @Will Fraser - Thank You. What if I am getting same cashout with 0.5% difference in rate? Should I go with 15 or 30 years Tems?

    @Cameron Tope - Thank You for the response. I am not a stock guy. i understand real estate a bit but always failed in stocks. I can put few grand but not a lot in stocks.

    @Fradel Barber - I have couple of lenders I know, they find deals cheaper than normal market rate.

    @Lee Judd - Yesterday someone explained me how inflation plays a role in long term mortgage. What exactly do you mean when you said today's payment with tomorrow's dollars.

    @Will Fraser and @Lee Judd - Do you recomment putting back rental income into my primary reseidence and build equity if I take 30 Year loan? Or you think keeping cash for future purchase would be a better idea?

    0Reply
  • Lee Judd
    Lender · Logan, NM · Member since 2017 · 77 posts · 34 votes
    5y

    @Prakash Singh I'm definitely not an economist but in general the more money that is in our economy the higher the chance of inflation. Currently the Fed's goal is an average of 2% inflation per year. They pump money into the economy to try to push up inflation. If a widget today costs one dollar today then next year with 2% inflation the same widget costs $1.02. In 5 yrs it will cost you $1.10 for the same thing. Your income is the like that one dollar widget. 5 years from now you are getting 10% more but your cost of the loan didn't change with a 30 year fixed rate mortgage. So you have more money to make your payment with. 

    The downside of inflation is when you are holding on to cash. It is worth less everyday. That's why you will hear Robert Kiyosaki say "Savers are losing." Right now the bank is paying you half of a percent or less on your money you have on deposit. If inflation is running at 2% like the Fed wants than you are losing 1.5% on your money every year.  

    All things being equal I would take rental income and put it into the next rental rather than paying down your mortgage faster or saving it in the bank. Just my thought.

    1Reply
  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    5y

    Given the opportunity I would always always take a 30-year note over a 15.  It's just better (from a risk/reward standpoint in my opinion) 

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @Prakash Singh if you are still in growth mode as an investor I’m with @Will Fraser here. .5% extra on a sub 3% loan to free up an extra $50k to invest? Surely you can make up the difference in cost and so much more by investing that $50k!

    1Reply
  • Prakash Singh
    OP
    Member since 2018 · 4 posts · 1 vote
    5y

    @Brian G. What if I am getting same amount of cashout for no matter what term I take. Would you still recommend 30 years term?

    0Reply
  • Lee Judd
    Lender · Logan, NM · Member since 2017 · 77 posts · 34 votes
    5y

    @Prakash Singh i would take the longer term. I always tell my customers they can always pay extra of they go longer but if things get tight they are stuck with the bigger payment on the shorter term.

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @Prakash Singh yes I would personally choose a 30 year term to have the lowest monthly payment and the highest cash flow possible. You can always pay the 30 year like a 15 but you can’t pay a 15 like a 30 year. Take the extra cash and build up a war chess , ie a large cash buffer to protect your holdings if/when things do not go as planned and/or deploy that capital for your next investment. Good luck!

    0Reply
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