Should I refinance my rentals or personal mortgage?

Question

With the feds announcement today, would now be the time to refinance my personal or rental properties?￼

(I’m a newbie with two rentals. One we bought last year, one we bought 3 months ago, and personal residence ￼ for about 4 years now. We are also looking at buying another in the next few months.)

Timothy Hero · Answer

If we assume your bank will do 75% LTV, based on a value of $130k, the refinance would be $97,500. After fees, maybe $93k. You'd walk with maybe $13k and maybe a better rate. If you need the cash, it may be worth it. But unless you're getting a much lower rate, for loans under $200k, I encourage not to refinance if you're doing purely for a lower monthly payment.

Here's an example:

$80k loan @ 5% = $429/month

$80k loan @ 4.5% = $405/month

As you can see, the difference in monthly payment doesn't change much. You'd spend $3,000 in fees just to save $20/month. However, if you're getting a nice cash-out, then it might be worth it.

Cameron Tope · Answer

@Mark S.

I agree - I think your loans are almost too small to mess with individually. Have you done the math on how much your monthly payment would change? I bet it's not more than $50 and if you pay 5-10k in closing costs then it takes a while to make that money back!

As far as a portfolio loan, I had a meeting with a lender to discuss this option for my portfolio. He said they use all the SFRs combined ARV for the LTV. Then each property is assigned a loan portion of the total amount.If you sell a property the loan portion for that property must be paid off, not all of the proceeds to the loan (which like you was my fear initially). Example: You have 3 properties worth 100k, 150k and 200k. The bank will give you 80% LTV. You will have one payment on the loan of 360k (80k + 120k + 160k). If you decide to sell the 200k property then you must payoff only the 160k portion of the loan.

Does that make sense?

Cameron Tope · Answer

What are the terms and current interest rates of your two properties?

What are the terms and closing costs of the new loans?

How long you planning on holding the properties?

Any other big purchases in the near future as refinancing could cause a temporary drop in your credit score.

Cameron Tope · Answer

Solid question!

The banks are definitely still refinancing right now!

I would call a few local banks and see what the rates and terms are for a cash out refi. Another big factor when you refi is the LTV - I've seen as high as 80%. Then look at how your monthly payment would change and the amount of cash you'll receive. I would assume 2-3% in closing costs.

And remember, you don't have to take the full 80% if you don't want to, but it's always good to have some cash handy.

Hope that helps!

Timothy Hero · Answer

That's the plus of a refinance. Assume you're doing a $150k refinance loan and the fees total $3,500 and escrows total $4,000, the actual net you'd receive would be $142,500. The loan would still be $150k, however.

Timothy Hero · Answer

$3k in fees is only an estimate. Luckily all the fees come out of the loan. You typically only pay appraisal out of pocket.

Jaron Walling · Answer

@Timothy Hero Thank you for the words of wisdom. Technically you do come out of pocket but it's only from the sweat equity I added to the property. Have a nice day and avoid the virus!

Jaron Walling · Answer

@Timothy Hero Ohh shoot I didn't realize that. I thought I needed to come out of pocket.

Jaron Walling · Answer

@Timothy Hero Thanks for the response man! That payment change is nothing but that $13K in CASH would be massive. I've already started the rehab on the new place and need the funds.  The $3k in fees kills though. I agree if the rate doesn't change very much it's not worth it. I look at like 13-3= $10K and that's assuming it appraises correctly.

I'd love to lock in a 2-3% fixed. I'll wait a few weeks and talk to my bank.

Mark S. · Answer

@Cameron Tope, makes sense.  Thank you.

Should I refinance my rentals or personal mortgage?

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