Here is yet another one of these questions, thanks in advance for your guys help.
I have a home that I purchased for my primary residence close to 5 years ago. I put 20% down on the property at purchase and got a 30yr fixed rate mortgage at 4.875%. I have been offered a job in another city 1700 miles away and was planning on selling the house in May when I transfer.
This winter in the rainy climate where I live I ended up with a leak in my roof. Previous owner put the roof on himself and you guessed it, he screwed it up. So now we need a new roof. Estimates for a new roof are between $5,500 and $7,000.
I have considered refinancing the mortgage into a 15yr fixed rate with an interest rate near 3.5% and renting the property out instead of selling to help recoup the costs on the roof. A 15 yr mortgage will rapidly accelerate paying down the principal on the mortgage.
Here's the numbers
Home valued at $205,000 purchased 4 and a half years ago for $190,000 with 20% down payment.
Current mortgage $138,000 remaining balance at 4.875% interest with 25 and a half years left. Current payment including property taxes and insurance is $1,090/month.
Rent estimate for the property is $1300 per month. 3 bedroom 2 bath single family home with attached garage in nice neighborhood with good schools and great location for highway access.
Refinancing to a 15yr mortgage would add an estimated $175/month to the total payment.
I don't need the equity in the property right away when I get to the new city as I plan to rent for roughly 2 years to see if I will stay.
My estimates put the total principal pay off over 5 years at close to $40k with a 15yr mortgage and only $15k with a 30yr.
So should I rent the house and refinance or sell and move on?
Personally, I'm always of the mind to try to get the rental option to work first if it makes sense. I want to accumulate as many properties as I can. That's my strategy of course and your personal desires need to play into this and what your long term goals are.
If it were me, I'd create a spreadsheet with the 3 options. Don't forget to include realtor fees/closing costs for sale option and also to include the refi fees in that option. From what I've found, unless there's a decent interest rate change or you plan to keep the property more than 5 years (give or take of course), refi will end up costing more over the short term. Your mortgage broker can give you that break even point. Also don't forget to include management, vacancies and repair reserves in the options for keeping the property.
The last thing I would think about, is what's the rental market like where you're moving. You may be moving to a weak demand area or an area where you might not be able to cover costs of the mortgage.
Good luck, you have a lot going on.
I would rent the house out. Do not get a 15 year mortgage because you will have carrying cost even at that rent...so keep the load light...If you could get it refinance for a 30 year loan and recover the refinance charge in 2 years you might think about it... but what you have is a free money at that rate and it gives you tax rid off... don't sell it.
Be sure to thank me in 25 years.
Allen and Morry,
Thanks for your insight. I am definitely leaning towards hanging onto the property and not refinancing for now to have a positive or neutral cash flow. Refinancing would put me in the red every month although not by more than $100 or so. I'll see how renting goes before I consider the 15yr mortgage.
I am thinking an equivalent rental property where I am going will be $1,400-$1,500 a month. Not the end of the world though.
Thanks for your input.
Chris, you mention you will trial the new area for approximately 2 years to see if you will stay. If you do not stay do you plan to move back to the area you are in now? If so, you could potentially move right back into your home without the headaches and costs of selling, then 2 years later, buying again.
This is a really close to what i'm doing for a client. What we decided to do was a lease with the option to buy. There were several reason but the biggest. Was the fact that if the tenant is thinking of buying it they will take better care of the property. Also you get a nice $5,000 to buy the option which could help in many ways.
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