I have a primary residence and a rental with mortgages in the 3% range and I'm looking to take advantage of low refinance rates in the 2% range.
The scenarios I'm going over are:
1) Refinance individually;
2) Refinance primary mortgage with cash out to pay off rental; or
3) Refinance rental with cash out to pay off primary
The lower rates are really appealing However, I'm reading that there might be tax consequences depending on the option I choose.
Has anybody dealt with this issue?
Cash out has to be detail tracked where you spend it. Cash out primary you can't buy a car and write it off as interest income on your primary. Tax rules regarding property interest changed, time for meeting with CPA. Rates for investment are not in the 3's without paying costs on a 30 year. Each refinance has fixed costs of title escrow appraisal underwriting recording etc. so weigh in this vs that on paper
I'm not sure that a refinance (cash our or rate/term) makes much sense for you, unless there is some higher interest debt you are trying to pay off, or you need the cash to fund another purchase that will have a reasonable roi for you. If this is not the case, I'd suggest a break-even analysis to see how long it'll take for you to actually be saving money with the marginally lower rate you're being offered, considering the costs of the transaction(s).
@Caroline Gerardo If I were to take cash out on my primary, it would go directly into paying off the rental. Vice versa for taking cash out on my rental. 3.25% on my primary and 3.75% on my rental; down to 2.125% consolidated. Thanks for the advice.
@Reid Chauvin I ran a spreadsheet and consolidating the mortgages would save me $17,000 over 10 years. Thanks for the advice.
I'm still trying to figure out how my tax returns would be affected.