Refinance Personal Residence

4 Replies

Hi,

I am just getting started and wanted to free up money to be more flexible. My current home has LTV of about 50% and I am on a conventional 30 year at 3.5%. I've been paying Bi weekly payment and will continue to pay the same amount and bi-weekly. I am refinancing a 7/6 Arm at 1.99%. My plan is to not change the payment amount and just take advantage of the interest rate. At the end of 7 years I'll owe in the high 150s and I will either pay off then if the rates are moving significantly. I'll also be paying a chunk of the old escrow balance once refi is complete. Does this sound like I am covering everything here or am I making a poor choice?

If your objective is free up money and create more flexibility why maintain the same payment schedule?  I would would pay the minimum.  Equity in your property residence is dead money.  Did you consider a cash out refi?  

Bi weekly payment plans are really marketing trick to get you make a couple extra payments per year and pay down principal faster.  


Back to your objective...is it free up cask and create flexibility or to pay off your primary residence?

@Matthew Geiger $317 at closing??? Am I reading this correctly? Doesn't sound like this option is freeing up any capital... 

If your goal is freeing up capital why not increase the LTV from 50% to 75%+. This would allow you to pull out ~$100k, assuming your home appraises for $500k.

7/6 ARM is good, especially with 1.99% locked in. Even if this increases to 2.99% in 7 years it's still not worth it to pay it off.

I agree with @Randy Bloch , if your goal is freeing up capital then you should reduce your bi-monthly payments to monthly. You're borrowing this money at 1.99%! why would you want to pay it down faster? 

@Randy Bloch @Jon Kelly I wasn't clear about the LTV. I'm not taking out any equity of the house yet I was pointing out that the house is worth 525k and I will owe 250k. I planned to do a Heloc after the refinance to be able to take out what I need to purchase properties and pay back once I do an LTV on the properties I purchase and just keep using the HELOC if needed.

Regarding why I am not just paying the minimum of the new loan.  I wanted to keep paying the higher amount to reduce the interest expense over time and pay it off faster.  Maybe this is my old way of thinking but also wanted to be able to reduce the amount I pay if I had a property that needed me to cover expenses during a vacancy or repair that wasn't accounted for.  


If the ARM increases only slightly year 7 I would probably just keep making payments on it. I haven't purchased my first property yet so my outlook will probably change.

My advice is clearly define your objectives and then base your decisions on them.  In my opinion, Right now they do not seem aligned, but maybe I am not seeing the entire picture.