Cash-out refinance interest rates too high!

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Cash-out refinance interest rates too high!

James Denon
Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes

I need some help.

I am getting ready to cash out refinance a property I bought all cash back in June 2017 in Springfield, Massachusetts.

I got couple of quotes. All of them are in the low 5 to mid 5's with couple of thousand closing costs @75% LTV which is pretty high in my book!

I have perfect credit and no debt.

I am surprised that non-owner occupant, 3 family is penalized so much over an owner occupant.

If anything, I am more capable of paying the mortgages better than an owner occupant because the property produces more than 3.5 times the mortgage payment. It is professionally managed.

Does anyone know credit unions or banks that are more investor friendly and who can make logical risk assessments? Preferably 80-85% LTV with low 4's interest.

I am kicking myself. Monson Savings Bank was willing to do 4.1% with 70%LTV back in July. I shoud have done that. Instead, I waited for the seasoning period to be over and to get a better %LTV with Fannie and Freddie type loans.

I know it sounds stingy to sweat over 1% interest rate but that makes ~$100 monthly difference in cash flow. For a managed property, you are working with thin margins. So, $100 makes a difference in long term cash flow.

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
8y
Originally posted by @James Denon:

I need some help.

I am getting ready to cash out refinance a property I bought all cash back in June 2017 in Springfield, Massachusetts.

I got couple of quotes. All of them are in the low 5 to mid 5's with couple of thousand closing costs @75% LTV which is pretty high in my book!

I have perfect credit and no debt.

I am surprised that non-owner occupant, 3 family is penalized so much over an owner occupant.

If anything, I am more capable of paying the mortgages better than an owner occupant because the property produces more than 3.5 times the mortgage payment. It is professionally managed.

Does anyone know credit unions or banks that are more investor friendly and who can make logical risk assessments? Preferably 80-85% LTV with low 4's interest.

I am kicking myself. Monson Savings Bank was willing to do 4.1% with 70%LTV back in July. I shoud have done that. Instead, I waited for the seasoning period to be over and to get a better %LTV with Fannie and Freddie type loans.

I know it sounds stingy to sweat over 1% interest rate but that makes ~$100 monthly difference in cash flow. For a managed property, you are working with thin margins. So, $100 makes a difference in long term cash flow.

 Rates are trending upwards and will probably continue that way for a while, you and everyone is pissed, yup, that's where things are at, let's move on dot com. 

When you get a mortgage in a rising rate environment, there are three possibilities for the future: 

  • Rates continue to go up. Good thing you locked in what you could, when you could!
  • Rates flatten out. It's a wash. It is what it is.
  • Rates drop. You refinance and harvest the improved cashflow!

No point in worrying about July 2017. There is no time travel allowed. 

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  • Account Closed
    Rental Property Investor · Glens Falls, NY · Member since 2016 · 176 posts · 169 votes
    8y

    Trustco bank. I believe they service mass as well. 

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    8y

    5% for investment property is pretty good. I just did one not that long ago for 4.9% and I have a lot of property, equity and liquidity and great credit. That's just what the rate environment is right now. 5% is still a great rate historically speaking. Maybe 20 years from now we'll expect this is the new normal but my first mortgage in the early 90s was almost 9%, and that was considered a great rate. 

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  • Matthew Enos
    Coraopolis, PA · Member since 2018 · 36 posts · 27 votes
    8y

    @James Denon check with the lender. There may be a cutoff where they don’t require a second title insurance for a refinance. Anytime a lender is willing to roll costs into a loan I would do it. This would help with building/maintaining working capital but your first post said the cost was high. Wether you pay or roll into the loan the cost will still be the cost. What type of entity is the property titled in? You might be able to get a line of credit or abundance of caution on the property. It would give you equity with smaller closing costs

    0Reply
  • Scott Hollister
    Rental Property Investor · CT · Member since 2015 · 400 posts · 432 votes
    8y

    @James Denon,

    Your quotes are spot on here in New England for a non-owner occupied investment property. Its not so much that the 3 family is "penalized", it is "normal" that investment properties are higher interest. 5% and a fixed 30 is a good rate, historically speaking. 

    My advice is that you look into local credit unions or commercial banks. But you will run into other issues you won't like. For instance, local commercial banks are always going to be 75-80% LTV UNLESS you have a relationship and do NOT need a loan.

    They are also going to have shorter amortized periods, around a 25 year term.

    They will also have short ARM and your rate will adjust over 3 to 7 years.

    Your couple thousand in closing costs are normal. Last loan cost me 3500-4000 to close with no points. 

    Im just speaking from experience and what I have learned from local credit unions (Ive called every one in CT because I got stuck with a cash out refi)

    I think the real issue you will run into with fannie and freddie is the seasoning requirement, which you've met. The other will be your DTI if you have other properties and were aggressive on your tax returns. And they will also require you to have a certain amount of reserves in the bank to cover your payments, I believe 3 and 4 units are higher that 1 to 2 units.

    Best of luck!

    1Reply
  • James Zettelmeyer
    Akron, OH · Member since 2018 · 32 posts · 12 votes
    8y

    Rates have gone up quite a bit over the last couple of months. The standard Fannie Freddie rate adjustments are much higher on a cash out, NOO than most other types of deals. 6 months ago you'd probably be at around 4.25, give or take. 5% is about right although you may be able to get an .125 to .25 off depending on where you go but you wont get much more than that. Good luck!

    0Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    8y
    Originally posted by @James Denon:

    I need some help.

    I am getting ready to cash out refinance a property I bought all cash back in June 2017 in Springfield, Massachusetts.

    I got couple of quotes. All of them are in the low 5 to mid 5's with couple of thousand closing costs @75% LTV which is pretty high in my book!

    I have perfect credit and no debt.

    I am surprised that non-owner occupant, 3 family is penalized so much over an owner occupant.

    If anything, I am more capable of paying the mortgages better than an owner occupant because the property produces more than 3.5 times the mortgage payment. It is professionally managed.

    Does anyone know credit unions or banks that are more investor friendly and who can make logical risk assessments? Preferably 80-85% LTV with low 4's interest.

    I am kicking myself. Monson Savings Bank was willing to do 4.1% with 70%LTV back in July. I shoud have done that. Instead, I waited for the seasoning period to be over and to get a better %LTV with Fannie and Freddie type loans.

    I know it sounds stingy to sweat over 1% interest rate but that makes ~$100 monthly difference in cash flow. For a managed property, you are working with thin margins. So, $100 makes a difference in long term cash flow.

     Refinance now because in near future and beyond rates will rise.

    National debt is at an all-time high

    Dow Jones is at an all-time high

    10-year note is rising at a strong pace

    unemployment is down

    Appreciation is trending upward.

    All the above equal the feds raising rates continuously which means rates will continue to rise. Get it done now while you qualify.

    A bird in your hand is worth more than 2 in a bush!

    You will lose if you wait.

    I hope this helps and have a good Sir.

    1Reply
  • Marcos Torres
    Northern NJ · Member since 2017 · 38 posts · 18 votes
    7y
    Originally posted by @Account Closed:

    Cash out refi'ing my OO duplex right now with a portfolio lender...89.5% LTV at 4.375%

    What’s bank did you use?

    0Reply
  • Account Closed
    Rental Property Investor · Glens Falls, NY · Member since 2016 · 176 posts · 169 votes
    7y
    Originally posted by @Marcos Torres:
    Originally posted by @Account Closed:

    Cash out refi'ing my OO duplex right now with a portfolio lender...89.5% LTV at 4.375%

    What’s bank did you use?

    Trustco bank  

    0Reply
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