Understanding Cash Out Refinance Interest and Points

7 Replies

I am in the process of cash out refinancing one of my rental properties to complete the BRRRR method. The person doing my loan has offered me two choices:

- 4.5% with 2 points or 4.875% with 1.375 points

I have calculated the ARV of the property to be $70,000 and I will be able to cash out refinance 70% of the loan. The amount I anticipate to be given to be is ~$50,000. My question is: what option is better if I am pursuing the BRRRR method and playing to buy and hold this property long-term? Thanks in advance!

Hi Arron - I'll assume other terms are the same, loan term, fixed rates etc. Seems to me maximizing your cashflow will be important, so lower interest rate and higher points up front makes sense if you pay out of pocket. If you will finance the points into the loan then I'd consider the higher rate and lower points.

@Arron Paulino

Ouch! That sounds really high for a C/O refi. I am doing similar numbers at 3.6-3.75% par rates (no points) in Texas. Is the property in an LLC or something? I don't lend in CA, but know plenty of LOs that can probably get you a much better rate.

Let me know and I will send you some info.

Nick

Originally posted by @Nick Belsky :

@Arron Paulino

Ouch! That sounds really high for a C/O refi. I am doing similar numbers at 3.6-3.75% par rates (no points) in Texas. Is the property in an LLC or something? I don't lend in CA, but know plenty of LOs that can probably get you a much better rate.

Let me know and I will send you some info.

Nick

Yeah the people I've been contacting increased their rates due to Fannie Mae and Freddie Mac changes. I used to get those rates you speak of before those changes. I currently have the property under my name and am BRRRR investing in Memphis, TN. I do not mind getting more info about those lenders if you don't mind sharing!

Originally posted by @Niles Emerick :

Hi Arron - I'll assume other terms are the same, loan term, fixed rates etc. Seems to me maximizing your cashflow will be important, so lower interest rate and higher points up front makes sense if you pay out of pocket. If you will finance the points into the loan then I'd consider the higher rate and lower points.

 Yes, this is the standard 30-year fixed rate for this loan. I do want to maximize the cashflow for this property long-term and am leaning with the first option. I understand what you are saying and appreciate your response!