Investor · San Diego, CA · Member since 2018 · 12 posts · 2 votes
Hey all -
I hope all is well with everyone and the family =) ! I am in a difficult situation, hope you all can help with this tough question,
SHOULD I DO A CASH-OUT REFINANCE NOW OR A LATER DATE WHEN I NEED THE CASH FOR A PROPERTY?
I have an investment property in Mesa, AZ, currently cash flow positive 30 year @ 3.875%
I have enough equity to take out $70K, 30 year @ 4.125% if I do a cash-out refinance now.
My question is should I do a cash-out refinance now even though I don't plan on purchasing a house anytime soon? <-- I don't want the money to sit in the bank with 1%
I also already have a separate housing fund saved up on the side so this $70K would be an addition into my savings account.
You can arbitrage using the 70K, as long as you can get a return greater than 4.125% then you would be net positive. Also, it's good to pull out the equity while you have it and the interest is super low. Let's say you don't and the equity stays roughly the same but interest rates are up 1 point, then this decision would be harder.
@Chris I. Yes I have personally done this before to purchase properties, and I have been a part of this as a lender. We see this on commercial loans whenever someone is trying to meet loan to value policies most of the time, or if they have a property they have already paid off and they want to use that property as additional collateral for purchasing a new location. For example, if you have a property that you already own that the appraisal value is at $150,000 and the property you are wanting to purchase is $500,000, you could take $100,000 in equity out of the previous home as collateral for your down payment money to help get 80% LTV for your new purchase. Hope this helps!
The problem with Cash-out ReFi's is that you're signing yourself up for 30 years of higher, interest-first payments on day 1. If you don't have an immediate need, you have new holding costs. The problem with traditional Helocs are that when the credit market tightens (when deals are typically aplenty) they're the first thing frozen or converted by banks. My wife and I have a very specialized 1st position LOC on our property. It's tied to a zero balance sweep checking account, where every dollar we deposit is swept directly towards our outstanding balance. So we have 24/7 stable access to our equity, and our idle dollars also work much harder for us in the meantime. It was designed from ground up to sit in 1st position, so it carries the staying power more similar to that of a conventional mortgage. It's been great for us, and the flexibility has made it a fun tool to have in our financial tool belt.