I have two rentals and contemplating on making a $10K towards the principle on each SFH and having the lender recast the loan. The recast is only $250 each property. Thoughts? I'm cash flowing $450 and $600 monthly, but was thinking about being risk adverse. (Also lowering my DTI ratio for when we buy house number 4). I understand I will be paying slightly more taxes on the cash flow, but is it a wise move?
Or...just apply these principal payments to my primary mortgage.
Hi @Mike Willis ,
How soon are you planning on buying house #4? If you're getting somewhat close to that purchase, I might suggest hanging onto the cash until after you've applied for pre-approval for the new loan.
I love a recast option -- but even more than that, I love maintaining flexibility as you move toward another transaction. There are a lot of things you can do with $20k... if you pay the loans down and recast, you loose all the other options.
Cash is infinitely versatile.
Tax-wise, paying the principal down and recasting will be nearly identical. Either way, you'll immediately be paying interest on $10k less loan. So that's not a real consideration.
And don't get me wrong... I love a recast option. If you decide to pay the loan down, go ahead and pop for the $250 and recast.
@Mike Willis recasting is a great tool to utilize that not many people are aware of. It is definitely worth the $250 to do so. As Julee mentioned, the biggest question is in regards to your capital for the next deal. Recasting won't affect your DTI considerably. You are best to optimize your Schedule E for taxes to optimize your DTI from your existing rentals as you scale your portfolio.