Refinance? Or just keep it the way it is?

Question

Ok, so I currently have 2 separate properties that  only have a balance of $18000. Each but they value at roughly $160000. Each

What I was thinking of doing was to get a 20 year mortgage from a different lender for $80000. To mortgage "refinance " just one of them.  Out of that $80000. I would pay off both mortgages and also a $40000. Heloc on my personal property which I used as a down payment on  an entirely separate property.

My current payments on these 3 loans are $395. For the first $18000,  loan @ 4.5 intrest

$395.for the second $18000. Loan @ 4.5 intrest

And $689. On the Heloc $40000. Loan @ 8.75 intrest

Total  monthly payment on all 3 is $1479.

My thoughts are even with these high interest rates,  I would be better off borrowing some of the equity I have in just one property and get my other 2 notes freed up and my monthly payments would only be $680. Per month on a single $80000. Loan.

Am I missing something or does this sound like a good plan moving forward

Jason Wray · Answer

Richard,

You have a good amount of equity in both properties and if you plan on buying more REI.  I would not focus on the rates right now because they will come down in the next 12-24 months.  While property values will continue to increase you will be waiting for rates to come down but values will move upwards.

The lower rates will not help if the property values continue to rise which it looks like they will continue to do in majority of states.  I would tell you to do a cash out refinance use the cash to buy more rental properties and wait to refinance for the lower rate in 12-24 months.  You might have a little less cash flow but your increasing your inventory, doors and passive income.  Play the long game and you will be happy in the end.

As you buy more properties the equity will build so at some point you will be able to pull out cash and either pay down certain loans or continue to increase your doors.  Being cash fluid allows you to buy properties that need TLC so you can renovate and get out more cash on the ARV. That allows you to repay the previous loan and use whats left over to continue to buy more REI.

Devin Peterson · Answer

Good plan as long as you commit to it and you are okay with the new rates in this environment.

Boyd McClean · Answer

The first thing that comes to mind is how would that affect your taxes.?

Brittany Minocchi · Answer

Hey Richard -

It doesn't sound like a bad plan necessarily, as long as you are okay with trading your current rate for a higher rate and starting over on your amortization. Have you checked into an equity line of credit or a closed end second mortgage instead? The rates on these will be even higher than a refinance, but when you look at the blended rate (combining the rates of your current mortgage and the new mortgage) it's still more beneficial for most people than refinancing. Also keep in mind that even though the rate is higher on that second mortgage, it's on a fraction of the value of what it would be if you refinanced the entire thing. That way you don't mess with your exiting mortgage, its amortization schedule or the rate.

Whether or not these are options will depend on the property type, number of units, how its titled and your FICO. Hopefully that helps! Feel free to connect.

Erik Estrada · Answer

If the goal is to pay down these mortgage balances, you are better off just aggressively paying them down at a lower interest rate. When you refinance, it's like hitting reset, except now with higher rates.

A cash out would make sense if you are planning to pay off high interest debt or buy more cash flowing real estate.

Rivers Fike · Answer

What would the rate be on the new note? I think one major thing to consider is the amortization schedule of your existing loans. They are likely almost paid off and probably paying down a good bit of principal  with the refi you would be at the beginning of the schedule and paying more interest.

Now the payment on the new note is for the same amount but lower, so would have to have the amoritization length and rate to give a more specific answer.

Refinance? Or just keep it the way it is?

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