Considering Refinancing Given Historic Lows

5 Replies

Hello all,

Thanks for taking the time. 

My wife and I moved into our primary house in Kansas City, MO, in March of 2019. We then had the opportunity in October 2019 to refi our rate down from 4.5% to 3.5% - which we did. Now we're considering refinancing again. We would like to eventually move out of this house and rent it out if the numbers make sense. Current average comp rent rates in our area according to Bigger Pockets Rent Estimator are $1,250. Our current mortgage is $1,487 and we have a 3 bed 2 bath. We have an unfinished basement where another bedroom and full bathroom could/will be added. 

It'll be approximately 3k to close on another refi. Here are the options from the lender we're in contact with:

- 30 yr at 2.99%; decreases mortgage $66

- 20 yr at 3%; increases mortgage $232

- 15 yr at 2.75%; increases mortgage $509

Should we refi? Should we sit where we're at? Am I crazy to even consider renting this house out? Would love to get thoughts on this. If we're planning on leaving very soon, obviously, it wouldn't be smart to refi. Ideally, the numbers work later on and we can rent it out. Looking forward to input and discussion!

The numbers you present don't really make a compelling case to refinance, unless you are very confident that you won't be selling the house for a long time.  This would be the 3rd time paying closing costs in the course of 18 months.  Your best scenario of the 3 listed is to take the 30 year at 2.99% but even then if you are saving $66/mo it will take you ~45 months to recoup that upfront closing costs, and you are likely still working to recoup the closing costs from the previous refinance which just adds to it. 

Renting (long term) at this time doesn't appear to be a good option and unless finishing the basement and adding a room significantly increases the rent it can command it doesn't seem feasible in the near future. You are stating the market rent is about $200 less than what your mortgage is so you would need to find a way to increase monthly income to at least $1650+ to possibly even break even.   Perhaps as a short-term rental it could work if you have a good location and local regulation for that kind of thing.  

Originally posted by @Parker Maher :

Hello all,

Thanks for taking the time. 

My wife and I moved into our primary house in Kansas City, MO, in March of 2019. We then had the opportunity in October 2019 to refi our rate down from 4.5% to 3.5% - which we did. Now we're considering refinancing again. We would like to eventually move out of this house and rent it out if the numbers make sense. Current average comp rent rates in our area according to Bigger Pockets Rent Estimator are $1,250. Our current mortgage is $1,487 and we have a 3 bed 2 bath. We have an unfinished basement where another bedroom and full bathroom could/will be added. 

It'll be approximately 3k to close on another refi. Here are the options from the lender we're in contact with:

- 30 yr at 2.99%; decreases mortgage $66

- 20 yr at 3%; increases mortgage $232

- 15 yr at 2.75%; increases mortgage $509

Should we refi? Should we sit where we're at? Am I crazy to even consider renting this house out? Would love to get thoughts on this. If we're planning on leaving very soon, obviously, it wouldn't be smart to refi. Ideally, the numbers work later on and we can rent it out. Looking forward to input and discussion!

What is your home location? I would not refinance if you plan to move withing 5 years. Not worth it. You could still rent it out though and depending on where your home is you should be renting it out for a lot more. 

 

@Alex Olson & @Scott Passman . Thank you for your replies.

Alex, we live up north. Our house is in great shape - my wife and I have done a lot of aesthetic things. So I would like to think as it is currently, 3x2, it could rent for somewhere in the high $1400 potentially $1,500 range. 

There is 3x2 rented for $1,525 in our neighborhood. And a 4x3.5 rented for $1,875. So that's promising. I've been comparing refi options on Bigger Pockets - there are several options. There was a quote at 1.875%... nuts. However, 7k in closing costs, and it'd increase out mortgage to about $1,800 (very difficult to cash flow). 

We're planning on keeping this house long term because north Kansas City is growing and our house appraised 18k over what we purchased it for in less than a year. 

Originally posted by @Parker Maher :

@Alex Olson & @Scott Passman . Thank you for your replies.

Alex, we live up north. Our house is in great shape - my wife and I have done a lot of aesthetic things. So I would like to think as it is currently, 3x2, it could rent for somewhere in the high $1400 potentially $1,500 range. 

There is 3x2 rented for $1,525 in our neighborhood. And a 4x3.5 rented for $1,875. So that's promising. I've been comparing refi options on Bigger Pockets - there are several options. There was a quote at 1.875%... nuts. However, 7k in closing costs, and it'd increase out mortgage to about $1,800 (very difficult to cash flow). 

We're planning on keeping this house long term because north Kansas City is growing and our house appraised 18k over what we purchased it for in less than a year. 

Yes! Great. I would think you could get at least $500 or $550 a bedroom. Does it have a garage? Maybe more! I would not refinance. Just pay it down faster if that is what you are wanting to do.