Satisfying the mortgage and getting a new one
East Coast · Member since 2015 · 111 posts · 14 votes
Satisfying the mortgage and getting a new one
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Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
9moQuote from @Freeman Schultz:
Making a lot of assumptions. So please bear with me. Feel free to critique.
With the interest rates so high, would an investor be better off simply paying off the mortgage instead of a refi, assuming that they have the capital and then down the road get a new mortgage when interests rate start dropping?
Could one could possibly get a higher LTV from a new mortgage similar to a new purchase mortgage.
Here is an example.
Owner has $700,000 that needs to be satisfied once the mortgage matures. Instead of doing a refi for that amount or doing a cashout refi, they satisfy the mortgage. Wait a couple of months when interest rates are down and then get a new mortgage.
What is an interest rate that appeals to you and when will it happen? Inquiring minds want to know.
There is no such animal. Your assumption of predictability is misplaced. "No one" saw Covid coming, "no one" saw . . . I could do a million of these but you're young, you'll catch on in time. You have to do the best you can with the knowledge you now possess.
Yogi Berra — ‘It's tough to make predictions, especially about the future.’
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- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes9moYour comment: "down the road get a new mortgage when interests rate start dropping?'
Quote from @Freeman Schultz:
Making a lot of assumptions. So please bear with me. Feel free to critique.
With the interest rates so high, would an investor be better off simply paying off the mortgage instead of a refi, assuming that they have the capital and then down the road get a new mortgage when interests rate start dropping?Could one could possibly get a higher LTV from a new mortgage similar to a new purchase mortgage.
Here is an example.
Owner has $700,000 that needs to be satisfied once the mortgage matures. Instead of doing a refi for that amount or doing a cashout refi, they satisfy the mortgage. Wait a couple of months when interest rates are down and then get a new mortgage.
What is an interest rate that appeals to you and when will it happen? Inquiring minds want to know.
There is no such animal. Your assumption of predictability is misplaced. "No one" saw Covid coming, "no one" saw . . . I could do a million of these but you're young, you'll catch on in time. You have to do the best you can with the knowledge you now possess.
Yogi Berra — ‘It's tough to make predictions, especially about the future.’ - 8moKenneth GarrettPro MemberInvestor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
@Freeman Schultz
This comes down to cash on cash return of your money or opportunity costs lost. I’m not sure rates will dramatically change in a couple of months, but no one knows. Rates have come down about 3/4% - 1% over the last year. Will that trend continue? It’s hard to believe rates will at 5% or less by the end of 2026, but we can hope.
For me my cash on cash return needs to be 15% or greater and usually it’s way higher. I would look to park my money elsewhere and use leverage to max out my investments. The opportunity lost of future deals is greater than the return. Let alone having $700K to drop on a property.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes8mo
Quote from @Freeman Schultz:
Making a lot of assumptions. So please bear with me. Feel free to critique.
With the interest rates so high, would an investor be better off simply paying off the mortgage instead of a refi, assuming that they have the capital and then down the road get a new mortgage when interests rate start dropping?Could one could possibly get a higher LTV from a new mortgage similar to a new purchase mortgage.
Here is an example.
Owner has $700,000 that needs to be satisfied once the mortgage matures. Instead of doing a refi for that amount or doing a cashout refi, they satisfy the mortgage. Wait a couple of months when interest rates are down and then get a new mortgage.
Interest rates most likely are not going down or if they do they will go down minimally. i would not expect to see rates drop significantly. If they do then most likely the value of the home has also lost 10% on top of it.
The "should i refinance" is do you want to keep that equity locked up in a property or have liquid cash and if you have liquid cash can it earn more than what you are paying on the mortgage.
7e investments53 Reviews You're thinking smart - timing cash vs leverage. One catch: lenders treat new mortgages on paid-off properties differently than purchases. Stricter requirements, sometimes lower LTV. What could that 700k earn elsewhere while you wait?
- Lender · Marlboro, NJ · Member since 2025 · 243 posts · 150 votes8mo
Paying off the loan doesn’t magically reset the rules later. When you come back for a new mortgage, it’s still underwritten as a refinance, not a purchase, so you generally don’t get purchase-style LTVs just because the loan was paid off. Most lenders will still look at it as a cash-out or delayed financing scenario.
The bigger question is opportunity cost. Tying up $700k to avoid today’s rate only makes sense if that capital isn’t earning a better return elsewhere and you’re confident rates will drop enough to justify the round-trip costs. There’s also timing risk - nobody knows when or how much rates will move.
In practice, I see this work best when someone wants zero leverage for a period of time for risk or cash flow reasons, not purely as a rate bet. If the goal is flexibility, a conservative refi or partial paydown often accomplishes the same thing with less friction.
- Lender · Boca Raton, FL · Member since 2017 · 42 posts · 11 votes8mo
Personally, I wouldn’t pay it off. If you have equity or available cash, I’d rather see that used as a down payment on another cash-flowing property. One rental rarely moves the needle; two or three do. Paying it off feels safe, but it usually just slows growth.
Jerry Starr| Insource Funding
- 8moCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
Interest rates aren't high- they're normal. Don't get trapped by the idea that you should wait around for sub 5% interest rates.
Both of the scenarios you described are refis, terms and pricing would be the same no matter what. Just refi if and when it makes sense for you- identify an interest rate that is reasonable, and when the market hits it, refi then. If you want to pay off the mortgage in the meantime, more power to you.
A 1% monthly rent ratio with 50% expense/vacancy allocation makes 6% in cash flow unleveraged. Note any mls purchase that meets the 1% monthly rent ratio will be challenge to have only a 50% expense/vacancy allocation. So 6% cash flow is challenging. Add 4% for long term appreciation which would be real challenging on a 1% monthly rent ratio property. 10% total return, not counting any tax benefits, therefore is a challenging goal that very few mls properties will be able to achieve.
Who invests in residential RE for a projected 10%. Morons that do not understand the other options is likely the most common answer.
Leverage is why long term RE works. Without the leverage, after the value add the investor should exit. Making return for non passive residential RE that at best case matches the historical return of sp500 is not wise.
I do not consider re investing at anywhere close to 10%/year return. I want 50%+, may settle for 20%+ if it goes s a property I want to own. There is no way to sustain this level of return without leverage.
Other posts have already discussed the risks of relying on lower rates. I am with most of them on not relying on rates falling. I have always done my underwriting as though I will use the financing to maturity. So far I have never had a loan much over 5 years but I currently have 8 loans just over 5 years and am not considering a refinance of any of them. I will not be surprised if I have these loans over 10 years total and possibly longer.
Math: 1% month rent ratio = 12% annual rent ratio => apply 50% rule and you get 6% annual cash flow.
Good luck
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