To refi or not to refi

20 Replies

We have a property in Huntsville, Alabama that we purchased three years ago. It's cash flowing well and has enough equity to refinance and pull our roughly 14.2k for about 4k in closing costs(the breakdown of expenses are below). I'm not counting the prepaid insurance and prepaid taxes in that number since we have those funds in our escrow and will be transferring them over to the new loan if we refinanced. The est. APR is $135,000.

Debts to be Paid Off $80,885.00
Discount Points $3,016.24 
Appraisal Fees $500.00 
Credit Report Fee $13.75 
Undisclosed Debt Report $31.25 
Prepaid Interest $188.64
Insurance Renewal $468.00 
Insurance Escrow Reserves $195.00 
Tax Escrow Reserves $422.00 
Title Fees $700.00
Lender's Title Insurance $288.00
CountyTaxes $178.00 
County Recording Fees $137.50 

Total Costs $87,023.38
Total Estimated Due at Closing ($14,265.62)
 

Essentially, we would be going from $28,700 invested to $12,800 invested. This increases our cash on cash return but lowers our monthly cash flow. These two screenshots are attached below. Here's my question. Is it worth paying 4k in closing costs to get 14.2k towards another deal? Or would it be a better value to hold off and wait for the property to possibly increase in value and take out more later? Or is it better to not refinance this property at all? 

@Trina P. Paying $4k to get $14k is a steep price. Why are you refinancing? If you have a low interest rate on the mortgage already, I'd hold off on the refi. Let the property appreciate more and amortize your loan for a longer period of time. If you need the funds now, then I'd recommend you look for a cheaper source than refinancing this mortgage.

Why not add a HELOC 2nd to get the cash needed instead of wasting so much money on closing costs? I believe TCF Bank does them for less than $500 in lender fees, if you qualify, of course.

The fees listed actually total $6,138.38 and taxes and insurance are $1,085, which leaves $5,053.38 in closing costs and $3,016.24 of that is POINTS? 28% fees to cash out ratio is a lot and I never understand when people paying for points on such a small cash-out amount and not an amazing rate/payment difference. Based on the $5,053 in fees, it is a 35% fee to cash out ratio. If you were cashing out $500k, would you be willing to pay $175k in fees?

Just my opinion...

 @Peter McDonough I am using Guaranteed rate

@Shannon Wright I've never considered a 2nd HELOC. I'll check TCF bank out. Thank you for the tip! When you put it that way it definitely gives me a different perspective.

@Bob Norton We are refinancing to pull money out for our next deal. We would like to use private financing and would like to put down 25% of the deal. Do you find that is pretty typical for private lending?

@Bob Nortonundefined

@Trina P. Are you using private lending to refinance in Huntsville or for buying your next property?  Private lending can be any terms that you negotiate.  Some private lenders don't require you to put any money down, that would be your choice.  Hard money lenders, on the other hand, have different requirements and may require you to put money down.

I still think paying that much in closing costs for refinancing for so little doesn't make financial sense.

I like @Shannon Wright 's idea to get a line of credit on the house in Huntsville. You could also attend local REIA meetings and network to find private lenders that would be able to lend you $15k (or more) at a much lower rate than you would be paying to refi your AL property. Doing small private lending deals will develop into larger private lending deals as the lenders build a relationship with you and find out that you keep your promises.

Just contacted Guaranteed rate, they aren't getting anywhere close to the rates you've stated.  I would double check on the quote you've been provided.  Mortgage fraud is a serious crime.

@Peter McDonough I'm certain my lender is aware it's an investment property. I would also be paying $3k in discount points to get a lower rate. Is there something else I'm missing here? I don't typically get called our for mortgage fraud in my day-to-day...

Originally posted by @Trina P. :

@Peter McDonough I'm certain my lender is aware it's an investment property. I would also be paying $3k in discount points to get a lower rate. Is there something else I'm missing here? I don't typically get called our for mortgage fraud in my day-to-day...

He must be real fun at parties. Ignore him..he probably should've googled "mortgage fraud" instead of being an uninformed internet police.

Anyway, back to the relevant topic..I don't believe the cash-out refi at this point would be your best use of your equity. The closing cost at the moment is pretty high for the total 'cash out' and the cost wouldn't be offset from savings in interest from the .25% drop (it'd be different if it was at least a 1% drop). I'd definitely use the cheaper initial cost of a HELOC mentioned above and wait for a better opportunity to cash-out refi later on. You have rent increase/appreciation + principal paydown working hard for you to get a better cash-out later on!