Advice: Cash out refi

[Jessica G.]

Hi everyone. So my husband and I had been aggressively paying off our mortgage with the goal of saving up for a rental property after that, but with all of the information here and after talking with some investors at our first REI meeting last week, we thought it was time to stop talking about it and just.do.it.

So... we are working with a friend on doing a cash-out refi but the new payment is a little hard to swallow since it's $300 more/month and we've been so focused on getting out of debt... AND will eat into future cash flow when we rent out this property. 

I need to know whether we should do this or not! 

Current details:

Payment is $1,270

Interest rate 4%

Loan balance $108,000

Cash-out refi:

Loan Amount: $210,400

Conv., 30 Year, Fixed

Int. Rate: 5% (Cash-out Guidelines & No Points)

Monthly Payment (P&I, Tax, & Ins.): $1,580/mo

Cash Back: $95K

In our market, we were thinking $40,000 as a down payment on property #1, $30,000 on rehab, then use the $20,000 as a head start for property number two. 

Should we do the cash-out refi?? We actually intended on eventually renting out our current house, so a higher payment would mean lower cash flow in the future from that perspective as well... Thoughts?

[Stephen Renehan]

Perhaps I'm missing an important point. If you have sufficient equity, why don't you simply obtain a home equity line of credit? You can use the money when it's needed, without changing your existing note rate. Obviously, HELOC rates may rise, but why pay interest now if you don't need the money yet. Obviously, you know the exact details of your situation. I hope this helps.

Stephen