"Cheap Money"...to refi or not, that is the question.

[Todd Handriegh]

So I screwed up last year, or at least according to my current strategy.  I refi'd my 30yr mortgage on rental property down to a 15yr, and paid points to get down to 3.5% interest.

Now I'm wishing I pulled cash out so I could put it to use sometime in the near future, especially if the market corrects...but even if it doesn't, having capital is never a bad thing.

Now rates are finally bouncing, which are causing valuations to pull back.  Great timing - NOT.

Anyway, I decided to get ahold of my lender and they are going to give me a break on closing costs, as much as they can really...most of it is not really avoidable.  Looking at about $4k to refi again.  This will actually worsen my interest rate from 3.5% to 4.5%, and increase the term of my loan from 15 years to 30 years.  While initially it was looking like I was going to be able to cash out $35k, a lower than expected appraisal is now going to only allow me to cash out $17k (OUCH).  

 I will go from paying about $40k in interest over 15 years, to $95k in interest over 30 years.  My monthly cashflow will improve by about $150/mo.  

I immediately felt sour about the whole idea.  However, I still ending up talking myself into moving forward.  I mean...at the end of the day, isn't this all about cashflow and liquidity for expansion?  Even if I just took that $17k and stashed it in the S&P500 index for the next 30 years and never bought another rental, at an annual 8% return I'd make $170k, more than covering the additional interest paid.  

Cheap money is cheap money.  Even though it's not much cheap money as I would have liked to have.

And the upfront cost of closing will be significantly offset by pushing back a mortgage payment.

Any advice on whether this still makes sense to pull the trigger is appreciated.  Otherwise I just lose the cost of the appraisal and application fee.

Thanks as always, BP community!

[Taylor L.]

Personally, I would stick with a past decision that was sub-optimal but good enough and focus on the next deal. Rather than continually try to optimize the past deal at the cost of time and loan costs. Right now I have a property that I could cash out refi and bring down the rate, but ultimately it makes the most sense to sell, cash out, and look for the next deal to maximize my return on equity.