Cash In Refinance

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Cash In Refinance

Jordan Blanton
Member since 2019 · 37 posts · 30 votes

I have two recently acquired single family units. House #1 was purchased for 315k in October 2024 (appraised for 325k), currently at a 7.5% 30 year fixed  interest rate. House #2 acquired for 325k in April 2025 (appraised for 335k), currently 7.375% 30 year fixed rate. 

My question is this: should I refinance? Being offered a 5/5 ARM with starting rate of 5.875%. I would need to pay down equity of both houses to 75% LTV (15k costs), 6,000 for escrow accounts and 6100 for closing costs. Would get $4400 of skipped mortgage payments and $3000 from old escrow accounts. All this to free up $300 of monthly cash flow for each property ($600 total monthly).

So my calculations it would cost me truly 6k of refinance fees but I'm gonna include the fronted escrow and principal paydown. My calculator says it's a good ROI for the fronted money. I'm 33 and plan to keep properties for foreseeable future…other two rentals cash flow combined $1750 a month and large amount of equity. Thoughts and opinions are much appreciated!

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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
7mo

If the deals will support it a DSCR loan might be a better option than an ARM. You wouldn't be able to prepay the loan with a DSCR and there would likely be at least a 3 year prepayment penalty to refinance again but the rate would be locked in.

I worry about having to refinance an ARM at the end of the rate lock based on the current whims of the economy and mortgage rates.

My sister did some ARMs on SFHs during Covid and just had 4-5 houses rate adjust in the past 3-4 months and she got absolutely slaughtered on her new rate. Her mortgages went up on average $500 apiece which destroyed her cash flow despite having around 60% LTV.

For that reason I do not like ARMs. 

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  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    7mo

    If the deals will support it a DSCR loan might be a better option than an ARM. You wouldn't be able to prepay the loan with a DSCR and there would likely be at least a 3 year prepayment penalty to refinance again but the rate would be locked in.

    I worry about having to refinance an ARM at the end of the rate lock based on the current whims of the economy and mortgage rates.

    My sister did some ARMs on SFHs during Covid and just had 4-5 houses rate adjust in the past 3-4 months and she got absolutely slaughtered on her new rate. Her mortgages went up on average $500 apiece which destroyed her cash flow despite having around 60% LTV.

    For that reason I do not like ARMs. 

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    • Jordan Blanton
      OP
      Member since 2019 · 37 posts · 30 votes
      7mo
      Quote from @Alecia Loveless:

      If the deals will support it a DSCR loan might be a better option than an ARM. You wouldn't be able to prepay the loan with a DSCR and there would likely be at least a 3 year prepayment penalty to refinance again but the rate would be locked in.

      I worry about having to refinance an ARM at the end of the rate lock based on the current whims of the economy and mortgage rates.

      My sister did some ARMs on SFHs during Covid and just had 4-5 houses rate adjust in the past 3-4 months and she got absolutely slaughtered on her new rate. Her mortgages went up on average $500 apiece which destroyed her cash flow despite having around 60% LTV.

      For that reason I do not like ARMs. 

      This ARM has a rate lock, so the max it can increase is 1% at a time. So even through years 6-10, my rate would be 6.875%, which is still lower than my current rates (7.5% and 7.375%). Even if rates were crazy high after year 10, I'd have enough money at that point to easily sell, refinance, or pay off the loans.

      Just curious, why did she do ARMS during COVID with historically low rates? Even in 2022, I still got a 5.1% 30 year fixed on an investment property. 

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    7mo

    Have you looked into a 30 year fixed option with no lender origination fees? I think this would provide a better comparison than an ARM, to truly indicate if there are any savings. Keep in mind the next set of closing costs on a refinance in 5 years, this can really eat into your perceived savings as well.

    Seeing that these are long term holds, It might be more advantageous to apply more towards the loan principal pay-down rather than hitting the reset button and incurring more fees on a refinance. 

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    7mo

    At this time, I am seeing a lot more cash out refinances making more sense, than a traditional rate and term refinance. 

    [email protected]818-269-7983
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  • Mayo GilfurtPro Member
    Real Estate Consultant · Connecticut Ct · Member since 2026 · 130 posts · 30 votes
    7mo

    A refinance like this really comes down to break-even and risk tolerance, not just the rate.

    You're trading two fixed loans in the mid-7s for a lower 5/5 ARM, but you're also bringing cash to close and paying real transaction costs. The key questions I'd be running are:

    • How long do you realistically plan to hold before another refi or sale?

    • What does your true break-even look like after all costs (not just monthly savings)?

    • Are these owner-occupied or investment properties, and how stable is cash flow?

    In some cases the math works well, in others the ARM risk + costs outweigh the benefit. Happy to help you sanity-check the numbers if useful.

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  • Pierre Guirguis
    Lender · Marlboro, NJ · Member since 2025 · 243 posts · 149 votes
    7mo

    You're essentially fronting principal paydown, escrows, and closing costs to free up about $600 per month. The real question isn't just ROI on the fees, it's how long you plan to hold and how comfortable you are with a 5/5 ARM structure.

    A couple thoughts:

    - If you’re keeping these long term, you’re trading fixed-rate certainty for short-term cash flow. That’s fine, but it should be intentional.
    - The break-even on your true out-of-pocket matters. If it’s roughly 6k in hard costs and you’re saving 7,200 per year, that’s a quick payback. But that assumes rates don’t adjust meaningfully in year six.
    - You're also reducing leverage to 75% LTV. That's safer, but you're locking more capital into the properties.

    At 33 with a long runway, I’d personally ask: is the goal maximum long-term stability, or is it improving cash flow to redeploy capital elsewhere?

    The math can work. The risk tolerance piece is what really drives the decision.

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    • Jordan Blanton
      OP
      Member since 2019 · 37 posts · 30 votes
      7mo
      Quote from @Pierre Guirguis:

      You're essentially fronting principal paydown, escrows, and closing costs to free up about $600 per month. The real question isn't just ROI on the fees, it's how long you plan to hold and how comfortable you are with a 5/5 ARM structure.

      A couple thoughts:

      - If you’re keeping these long term, you’re trading fixed-rate certainty for short-term cash flow. That’s fine, but it should be intentional.
      - The break-even on your true out-of-pocket matters. If it’s roughly 6k in hard costs and you’re saving 7,200 per year, that’s a quick payback. But that assumes rates don’t adjust meaningfully in year six.
      - You're also reducing leverage to 75% LTV. That's safer, but you're locking more capital into the properties.

      At 33 with a long runway, I’d personally ask: is the goal maximum long-term stability, or is it improving cash flow to redeploy capital elsewhere?

      The math can work. The risk tolerance piece is what really drives the decision.

      Thanks for your response! The purpose would be to free up cash flow to re-deploy 100% into future investment. It would also improve my DTI to acquire another property soon with their my own cash or a refinance of my paid off property. 
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    • Pierre Guirguis
      Lender · Marlboro, NJ · Member since 2025 · 243 posts · 149 votes
      7mo
      Quote from @Jordan Blanton:
      Quote from @Pierre Guirguis:

      You're essentially fronting principal paydown, escrows, and closing costs to free up about $600 per month. The real question isn't just ROI on the fees, it's how long you plan to hold and how comfortable you are with a 5/5 ARM structure.

      A couple thoughts:

      - If you’re keeping these long term, you’re trading fixed-rate certainty for short-term cash flow. That’s fine, but it should be intentional.
      - The break-even on your true out-of-pocket matters. If it’s roughly 6k in hard costs and you’re saving 7,200 per year, that’s a quick payback. But that assumes rates don’t adjust meaningfully in year six.
      - You're also reducing leverage to 75% LTV. That's safer, but you're locking more capital into the properties.

      At 33 with a long runway, I’d personally ask: is the goal maximum long-term stability, or is it improving cash flow to redeploy capital elsewhere?

      The math can work. The risk tolerance piece is what really drives the decision.

      Thanks for your response! The purpose would be to free up cash flow to re-deploy 100% into future investment. It would also improve my DTI to acquire another property soon with their my own cash or a refinance of my paid off property. 

      That makes sense if the goal is to redeploy and improve DTI for the next purchase.

      The key question is whether the ARM actually moves the needle enough to materially increase your borrowing power, or if it's just marginal improvement. If it clearly accelerates the next acquisition, it can make sense. If not, you're trading fixed-rate certainty for limited upside.

      I’d just be sure the refinance directly advances the next step, not just improves monthly cash flow on paper!

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