Advice on refinancing mortgage

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Advice on refinancing mortgage

Drew Morton
Real Estate Agent · Birmingham, AL · Member since 2018 · 6 posts · 1 vote

I am looking for some advice on how to proceed with my current situation. 

Back story:

I purchased my first and only investment property in 2017 using a 30 year conventional loan with I believe around a 5% fixed interest rate. In 2020, I decided to refinance due to the low rates and got what I’m now considering some not so good advice to get an adjustable rate which ended up being around 3.2%. As you can imagine this decision has been eating away at me now that my interest rate has moved up to 8% today.

In 2022, I decided it was time to renovate the house as it was in need of major renovations. I was able to get a HELOC for $70k on the property to help pay for renovations that extended through Q3 of 2022. I have since completed the renovation and also just finished paying off the HELOC. Since completion, I decided to move into the house rather than rent it out so I can continue doing some small things to get it ready to rent for top dollar in 2024.

Options:

Now that my focus is away from paying off the HELOC, I am trying to determine if I need to refinance once again to get a fixed interest rate since my adjustable rate is tied to prime and most likely will continue going up. I have reached out to a mortgage professional to get a couple refinance options. He mentioned I should do this now and unfortunately will probably want to refinance again in a couple years assuming rates drop. Here are the options he provided:

1) 15 yr conventional fixed rate of 6.25%. Estimated closing costs = $4,600. Total loan amount = $125,000.

2) 30 yr conventional fixed rate of 6.625%. Estimated closing costs = $4,600. Total loan amount = $125,000.

Questions:

1)  With an existing loan balance of $116k, do I refinance or sit tight and risk interest rates to continue increasing?

2) If I do refinance, do the options I was provided appear to be consistent with what to expect right now regarding the rate and closing costs? 

3) If refinancing is my best option, would you take the 15 or 30 year?

Thanks for the help!

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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Drew Morton:

    I am looking for some advice on how to proceed with my current situation. 

    Back story:

    I purchased my first and only investment property in 2017 using a 30 year conventional loan with I believe around a 5% fixed interest rate. In 2020, I decided to refinance due to the low rates and got what I’m now considering some not so good advice to get an adjustable rate which ended up being around 3.2%. As you can imagine this decision has been eating away at me now that my interest rate has moved up to 8% today.

    In 2022, I decided it was time to renovate the house as it was in need of major renovations. I was able to get a HELOC for $70k on the property to help pay for renovations that extended through Q3 of 2022. I have since completed the renovation and also just finished paying off the HELOC. Since completion, I decided to move into the house rather than rent it out so I can continue doing some small things to get it ready to rent for top dollar in 2024.

    Options:

    Now that my focus is away from paying off the HELOC, I am trying to determine if I need to refinance once again to get a fixed interest rate since my adjustable rate is tied to prime and most likely will continue going up. I have reached out to a mortgage professional to get a couple refinance options. He mentioned I should do this now and unfortunately will probably want to refinance again in a couple years assuming rates drop. Here are the options he provided:

    1) 15 yr conventional fixed rate of 6.25%. Estimated closing costs = $4,600. Total loan amount = $125,000.

    2) 30 yr conventional fixed rate of 6.625%. Estimated closing costs = $4,600. Total loan amount = $125,000.

    Questions:

    1)  With an existing loan balance of $116k, do I refinance or sit tight and risk interest rates to continue increasing?

    2) If I do refinance, do the options I was provided appear to be consistent with what to expect right now regarding the rate and closing costs? 

    3) If refinancing is my best option, would you take the 15 or 30 year?

    Thanks for the help!

     @Drew Morton    A few questions to help you answer your question:

    1. Idea of credit scores?

    2. What is the house worth? (ball park)

    3. How long do you expect to own this property?

    4. Are you being quoted conventional loan? In other words, are you going to qualify with tax returns etc? 

    Hurst Real Estate, INC4.991 Reviews
    WebsiteView Page
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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    3y

    @Drew Morton Before you refinance I'd slow down and ask yourself what is the STRATEGY for this property. You're buying position in 2017 has obviously helped but renting, remodeling, and moving back into the property feels all over the place. 

    Did you pay down the $70k HELOC with 9-5 money? If the goal is a rental your tenants could have been paying that down...

    What level of remodel has been completed on this property? Is it over renovated beyond a rental for the neighborhood? How long do you want to live there? If you're sitting on equity maybe it's time to sell, save on taxes, and find the next opportunity. Every time you ReFi it's costing you money and hurting the numbers. Interest rates are up but you're not making it out the front loaded aspect of amortized loans. 

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  • Todd Jones
    Member since 2023 · 243 posts · 199 votes
    3y
    Assuming good credit and an average rate of home appreciation.

     1) I would refinance for a fixed rate. They may raise it by 0.25% two more times but then a recession may occur but you can't predict the future. 6.625% isn't that bad.

    2) Those numbers look accurate but the lender should be able tell you their estimations.

    3) As mentioned above, it all depends on how long you planning on keeping it. Another option is to do bi-weekly payments which equal out to a 22 year loan. If you have a w-2 job, this is great for budgeting. But, this all depends on your budget and expenses.

    Careful on refinancing it within 2 years as this may lower your credit score by 10-20 points due to the pings.

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  • Drew Morton
    OP
    Real Estate Agent · Birmingham, AL · Member since 2018 · 6 posts · 1 vote
    3y

    @Jay Hurst

    1. Credit score upper 700s

    2. $325k

    3. long-term

    4. conventional

    0Reply
  • Drew Morton
    OP
    Real Estate Agent · Birmingham, AL · Member since 2018 · 6 posts · 1 vote
    3y

    @Jaron Walling My strategy was always to rent it out and keep it for a long time as it's in a very good market of Birmingham, AL with a great school system and appreciating area. I purchased the property with tenants already in the home which is why I didn't renovate right away. Once the tenants left is when I did the renovations and decided to move in myself for 1-2 years since the timing made sense when I needed a place to live myself anyways. I plan to rent it back out probably around this time next year.

    HELOC was paid down primarily from my w2 income, plus some side gigs including one property I sold as an agent.

    The changed the layout from a 3 bed 1 bath to a 2 bed 2 bath due to only being 950 sqft. With tiny closets and a shared bath, it wasn't likley I could find 3 people willing to rent the house. A two two just made more sense. The 3rd bedroom is now the master bath and walk in closet. Living room and kitchen were separated by a wall and now an open layout with island. Added about 50sqft as non HVAC space where the laundry is now vs being in the kitchen previously. It isn't over renovated as a lot of houses in the area are being renovated similar.

    1Reply
  • Drew Morton
    OP
    Real Estate Agent · Birmingham, AL · Member since 2018 · 6 posts · 1 vote
    3y

    @Todd Jones Thanks for the reply! I am leaning towards the 6.625% 30 year and just sucking up the closing costs.

    0Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Drew Morton:

    @Jay Hurst

    1. Credit score upper 700s

    2. $325k

    3. long-term

    4. conventional


     Based on the above you could do MUCH better in terms of rates AND costs for both 30 and 15 yr.  

    Hurst Real Estate, INC4.991 Reviews
    WebsiteView Page
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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Drew Morton- thanks - 1) definitely refinance now while it considered a primary residence as rates will be significantly lower then rental prop pricing 2) the .375% spread in the 30 and 15 yr options isnt huge so I would suggest using the 30 yr fixed option and if you want to payoff the loan faster you can always pay extra on your payment 3) fyi - it would very unusal if your 1st mortgage ARM is tied to the PRIME rate ..most ARM loans are tied to other indexes 4) if you want to keepthe HELOC in place - make sure you let the lender know as this will change the pricing and also require them to request a subordiantion agreement from the heloc lender . good luck

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