Refi

2 Replies

I have a rental property with a $1013 mort. payment.  It includes ins and taxes.

I rent the property for $1050.  I owe 114K on the 145K mortgage.

If I refi I can drop the mortgage to under $800 month.  It seems like a good opportunity.

What am I missing?

It does sound like a great idea.  I am in the process of refinancing my rental property from 5.75% to 3.87%.  It drops my mortgage down by $600.  Of course I am going from what was a 30 year (and is now a 20 year) to another 30 year.  However, if I pay an extra $200 it will be paid in less than 20 years. 

The benefit that I see is that when I go to finance another property, the banks will see that this property is making money and will lower my debt to income ratio.

What are the terms of both the old and new mortgage?

Excluding your taxes and insurance, there are two things that determine your monthly payment for a given dollar amount borrowed:  Interest rate and length of time to repay the loan.

In your current situation, assuming that your interest rate does not change at all, you are simply stretching out the mortgage payments for a new 30 year term.  I assume that your current mortgage is 30 years.  If you are 10 years into it, by getting a new 30 year mortgage, you will have effectively financed this for a 40 year time period.  By taking a smaller loan balance than your original mortgage amount for a new 30 year term, you reduce your payments and extend your time in debt.  Not necessarily a bad thing.

If your interest rate will be reduced with your new mortgage, that is another way to save.  Outside of simply considering the monthly cash flow improvement, how does this new rate savings compare to the cost of the new loan.

Regardless, if you intend to keep this for a while, your current cash flow situation seems like it needs serious improvement and refinancing could be a good step in the right direction.  Additionally, raising rent, shopping around for cheaper, but appropriate insurance as well as potentially protesting your tax assessed value could help.

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