Re-Post: Cash out refi to pay off rental mortgage?

Question

Not sure why the first post was removed. Here it is again:

Hi guys, I have primary residence mortgage $272,402.50 remaining at 3.625% with 24 years left and a rental unit with $260,997.99 remaining mortgage at 4% and 23 years left.

I'm thinking of taking a cash out refinance on my primary residence for the amount of $545,000 so I can pay off my rental unit mortgage.

Assuming I can get the same rate of 3.625% for my refinance, does this make sense? I can cut my monthly mortgage by about $500.

Will I end up paying more since I will be taking on a fresh 30-year mortgage?

Thanks!

Kaiser J. · Answer

No.  Do not lever up your primary residence to pay off debt on an investment property, particularly for so little rate savings.  If you hit a rough patch one day and default, you would have put yourself in position to lose your primary and be forced to move into your rental property (I assume these are with different lenders and not cross-collateralized).  Keep things as they are and work on paying down your primary mortgage first.

Matt Pastier · Answer

@Hank Lloyd How well is your rental unit performing for you? Are you happy with the cash flow and returns? If not, does it make sense to sell it and then use the proceeds to invest in properties that cash flow better? I recently took advantage of the good market we’re in and sold my first investment property (SFR). I got my money back and then some, and reinvested the money in a multi family that is going to more than double the cash flow I was getting for the SFR. If you did sold, you would get DTI room and could take advantage of the low interest rates. Just another way to look at it.

Chris Hill · Answer

I’m in the same boat

Looking to cash out refi to pay off rental mortgages

I like idea of buying more instead of payoff, but prices are so high in my area that I can’t find anything that would cash flow

So would you pay off?

Hank Lloyd · Answer

Thanks for the replies! My DTI ratio is maxed out so I won't be able to qualify for any additional mortgages, which means I will need to buy properties all cash?

Jerry Padilla · Answer

@Hank Lloyd

I agree with

@Brent Paul

I would do a cash out refinance to put down and purchase more property with. Rates are higher for a cash out refinance than a purchase so not sure you are going to be able to beat your current rate.

As far as refinancing just to pay off a mortgage and save $500 a month - you aren’t really saving anything, long term. You are just extended your time to pay off the mortgages.

Instead if you purchased cash flowing investment properties with the money than these cash flowing properties could now pay off your mortgages.

Brent Paul · Answer

Why do you want to pay them off?  Why not take some of that money and put down payments on more properties generating more cash flow?