Debt Paydown with Rental Property Refinance

[Jason Vermeulen]

Hi there, a finance question, I have been asking myself the past couple weeks that Im curious to get some more thoughtful input on.

I currently own a rental property valued at approx $400,000 and owe $180,000 on a 20 year variable rate commercial loan at 6% interest. The rate will change in 1 year and I have 16 years left on the loan. My current mortgage is $1480 a month.

I also have approximate $50,000 in both car loans and a home improvement loan for my personal residence. The rates vary but they are between 6 and 8.5% and have 3 to 7 years left on the loans. Currently my monthly payments total $1400.

I have been talking with a lender about a cash out refinance in my rental property. The cash out would get me a 30 year fixed rate mortgage at 7.25% and that includes buying 2 points so closing costs around $10,000 if I pull out $50,000. This monthly payment would be approximate $1700.

And a final item for consideration. Im looking at building a personal residence on a plot of land i own in about 2 years. So im not interested in buying another rental right now, and i would like to build up more cash reserves and have zero debt(outside of business) before building.

So im thinking of using the refinance to paydown my debt. I know in the long run this will be more expensive, but I can build significantly more cash up in the short term($1000 a month). What are your thoughts on this approach? I am also a fan of driving a lot of simplification in my personal finances.

Or do I wait and do the refinance before I build and pay off all the debt that is left and pull out additional cash needed for build? And of course pay off more debt with monthly cash flow?

Or any other thoughts?

Thanks in advance!

Jason