Refinance our rental property?

5 Replies

I apologize if I'm putting this on the wrong board. Feel free to move it if need be.

How does one figure out if it's worth it to refinance a rental property? We have one mortgage, and that's on our rental property. What was once our home, we became accidental landlords when we were unable to the sell the property. While the rent income does cover the mortgage payment, there's not much profit. We are currently making extra payments on the mortgage, trying to get it paid off. We have no other debt, and we'd like to get rid of this mortgage as well. Refinancing would make our mortgage payment lower, meaning I could sock more toward the actual principle, right? But then with the costs involved in refinancing, I'm not sure it would be worth it. We are enjoying the rental aspect and no longer want to sell.

House was appraised for $80,000 in 2009.

Our current interest rate is 5.3% and there is $60,000 left on the loan.

If we do refinance, is it best to do so without tenants in the house? Does it matter? I'm assuming the house will have to be re-appraised, and I'm also assuming the value will go up, as the kitchen and bathroom and garage were all gutted and re-done in 2009/2010.

Just looking for a little insight. Thanks in advance.

You should def be able to get the rate lower..Find a bank or credit union with no closing cost or incentives to get your business...let them run the numbers.  Most can give you a general idea of appraised value..

Refinancing (without pulling out equity/changing your rate) does nothing to help you pay it off quicker. 

You can probably get a better rate than 5.3%

Figure out how many years till it's paid off, how much the interest rate lowering will save you and how much it costs to close on the refi. 

If the interest rate savings is more than closing costs,  refinance,  else,  just keep paying it down. 

If your goal is to only own one property, and have it paid off,  don't worry about cash flow. No reason to get a lower payment,  just to throw extra money at it, unless you are looking for the flexibility/option of not throwing the extra money at it. 

Shouldn't matter if tenants are there on a single-family refi. 

Edit: If there's no profit, sell the house. 

There certainly would be long-term profit if your equity was invested elsewhere. 

Call a realtor, ask how much your house would sell for, then figure out how much equity you have. Having then money tied up making you no money is a pretty big opportunity cost. 

@Lyndsey Keller  , one thing I considered when I converted my primary into a rental was tax-free appreciation if I were to sell.  If you occupied it as your primary for 2 years and have rented it only in the past 3 years, you could sell for a tax-free gain. Once the 5-year window closes, there's no tax-free gain for ya. 

As far as refinancing a rental, the allowable LTV is lower. You are probably ok only owing $60k, but they will probably only allow an LTV of 75-80%. The rates are a little higher as well. If it saves you more than 1.5% it may make sense. Got to divide your closing costs (say about $3600) by your interest saved (not much on $60k) and see when you would break even. May be 3 years, Not worth it? It's a huge pain. I wouldn't for a 3 year payback. Just pay it off if you don't decide to sell for the tax-free gain!

We had a home loan from 2008, it was a 30 yr fixed but I forget the interest rate, we refinanced in 2012 to a 15 yr fixed rate and got 3.625%, the payments stayed roughly the same.  If we had gone to a 30 yr again they would have been about 25% lower but we wanted our house paid off asap.  In our case, it was worth the cost of refinancing (I think it was around $5k)  to take 11 years off the life of the loan.  You will just have to find out what the charge is to refinance and go from there!

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