Cash flow vs. Interest rate

6 Replies

Hello, 

Currently I have $150 cash flow monthly from a rental property with interest rate 3.0%, and I would get >$400 cash flow if I do refinance (of course, higher interest rate for sure). What would you do? keep as it is or refinance for more cash flow with extended payoff period?

Thanks for your input!

You'd cash flow more at a higher interest rate? I'm confused, lol. It depends on the costs of the loan. If it's going to be $4k in fees, that's $4k you'll be playing + interest on it. If you're saying the cash flow will increase to $400/month after the refinance, absolutely do it.

Hi Timothy, Yes, I would get more cashflow at higher interest rate with "extended period". So I am debating myself whether to give up current better interest rate or to make more cashflow...

@Kenny Kim I'm going to guess the higher cash flow would be due to housing prices increasing, you've paid off a good chunk of the mortgage or had the house for a while and therefore would extend the length of the mortgage. Find out what the numbers are and go from there. Also factor in what you'd do with the extra money you'd be pulling out.

@Kenny Kim I would say that you should go for the increased cashflow, assuming you're going to reinvest/save that amount towards another investment. If you do not plan on doing so, then I would say to just leave it in the house. 

It depends on your strategy. If you are aiming strictly for cashflow refinancing is the way to go. Over time you will coup the expenses but only if you are holding for an extended period would it be worth it. 

@Kenny Kim what was original term of your loan and how many years do you have remaining? You shouldn’t make a decision until you factor all the variables, including refi costs and loan size.

I think it’s less likely to make sense if you are only 5 years into a 30 yr term, but you’ll need to run the numbers and have good use for incremental CF generation. I personally wouldn’t give up 3% interest unless I’m half way though the loan term.