What Would You Do? (Fixed or Arm Refi?)

8 Replies

Alright, so I'm working on a couple refinances right now, and one of them I'm a little stumped on - so I could use some input.

I owe $75k on a duplex that should appraise around $120k. I have 2 options:

1.) I can do a cash out refi for 75% LTV, or $90k, and pull out $15k in cash from it. However... it would be a 5-1 ARM.

2.) I can do a straight refinance for the $75k, not pull out any cash, and it would be a 30 year fixed mortgage.

What would you do? The extra cash would be nice, but I'm not desperate for it. Thoughts?

Medium fbprofileBrandon Turner, BiggerPockets | http://www.BiggerPockets.com | Podcast Guest on Show #92

I'm an equity guy so I wouldn't take any money out of it unless I had a plan for it. I'd refi and just collect the extra in monthly payments.

You building cash flow or assets at this young age?

Are you seriously considering an arm in this climate?

Why not just do a 15 yr and pay it off?

Tiger M., Tradewind Investments Real Estate and Property Management | 702‑870‑5500 | http://tradewindpropertymanagement.com

I have a 10/5 arm but it's only on 28K. It'll be gone before the first adjustment.

I'm about to buy another but it'll be on a 15 year fixed. Cash flow not real high but having an asset produce $15K a year when I'm 50 sounds good.

I'd go fixed as well. Real estate is a nice hedge against inflation, unless your mortgage is not insulated against it.

Let us know what you do!

Mike

I've been pondering the same question. I also have a duplex, but the numbers are slightly more tempting. I owe $80k on it, but it's appraised at $160k. For me I know I am still at the beginning of my investing career so I think that leveraging as much as I possibly makes the most sense for now. Although I do intend to start paying things down and locking in fixed rates once I've gotten to a comfortable point with my passive income, say 20 doors, lol. I've got 5 down and I'm trying to tie up 7 more by the end of the year.

I know your goals are much higher than 20 doors since you've already passed that a long time ago. So you might still be in the growing phase, which means LEVERAGE that bad boy!

@Brandon Turner

I haven't dabbled in conventional mortgages recently however I have to believe you can get a cash out 30 year mortgage on your duplex. Have you talked to enough bankers? Maybe the local or regional banks that have underwriting departments in house could give you a good idea if it was possible for a conventional mortgage. Maybe you have already tried this however that would be my route.

I would try to pull the cash out however wouldn't do it at the cost of a 5-1 ARM. With that being said it's a rather small loan so it wouldn't kill you in the future.

I have to assume that you have a good use for the money that will produce a yield over and above the rate you'll be paying when the instrument resets. Depending on how levered you presently are, I don't see why you don't go with the ARM.

If you don't have a use, I don't know why you would consider an ARM in this rate environment. There is a reason why high duration fixed income instruments have been selling off like crazy.

If your sure you can pay off when it starts to adjust the ARM is fine, but I hedge my bets and go with 30 year, the difference in monthly interest is very, very little at that amount, and you have flexibility if you get in a cash jam doing a project.

If it has good positive cash flow with pulling out the $15k, and you have a money making use for it, I would take the cash out,,,I want as much 5% money as I can get with rates set to rise in the future,,,,in fact i would do 30 year and not think about paying it off for awhile

I agree with Riley - If you aren't planning on leveraging the extra cash from the ARM into something that will yield a higher return than the future adjusted rate, then I would default to the refi. Hope that helps!