Cash Out Refi or Normal Refi on Duplex?

Question

Currently in the process of a refi for my duplex. Bought for $109,000 in 2017, recently appraised for $144,000. I'm currently sitting at a 3.75 % FHA loan and refinancing into a 30 year conventional loan.

The options I've been given are a cash out refi at about 4% for about $5-6k or a regular refi for about 3.5%.

Any advice on which I should get?

I would like to focus on generating more cash flow, the regular refi would be best for that. But taking the cash out would also double my current investment savings, which I could potentially use to purchase a new income property. At the cost of a higher interest rate. Any advice is appreciated!

German E. · Answer

Given the information you provided, I think a cash out refinance would be a terrible idea no matter how long you will hold the property for.  Those $2K-$3K in closing costs is real money, which is being rolled into the loan and paid for the privilege of getting $6K out.  On top of that the interest rate on the rest of the loan is *increasing* so you will be paying more interest on the rest of the loan.  You might see a similar monthly payment after the refinance, but the catch is you will be paying your mortgage for 3 more years after you would have finished your original 30 year loan.

Now, the other option is a standard refinance which lowers the interest to 3.5% from 3.7%.  That would seem more reasonable, but again you will be paying closing costs and making 3 more years of interest payments, I don't think it would be worth doing either.  The bottom line is you got a very good deal with that 3.7% loan in 2017, I would just leave as is.

Derek Burkard · Answer

@Jaron Walling Oops sorry I didn't clarify, the cash out amount I can pull is about $8000, the $5-6 was the estimated amount I can get after closing costs were considered.

Derek Burkard · Answer

@Jaron Walling And I do plan on holding for a very long time.

Jaron Walling · Answer

@Derek Burkard Another thing to consider is the cost of the refinance. How much are closing costs?

How many months will take to recover the costs associated with the loan? In my opinion you're not moving the needle enough on the interest rate to get me excited. Spending $2-3K (est. closing costs) just to get $6K cash-out doesn't seem worth it unless you plan to hold for 20+ years.