How can I lower my monthly mortgage for my duplex?

Question

Hi All!I have owned a duplex now for almost 4 years. It was my wife and my first home purchase in Wisconsin, and it's been awesome to have the capability to have an owner occupied place coming from living in one bedroom apartments. While it's been great, it also hasn't made me 'rich' haha. In fact, renting out one side doesn't cover the whole mortgage bill.I've had this idea for a little while now, but thought it might be best to ask this community. Currently my mortgage is about 2250/month, and the rent we get from one side is currently at 1525/month. So we typically owe about 700/month. Don't worry, I'm still putting a few hundred aside a month in my emergency fund in case anything hits the fan! (Place is in great shape, and in 4 years have had essentially nothing serious happen).All that being said, I was wondering if there was a way to lower my monthly mortgage, ideally to get it down to about 1500/month so then we would be breaking even and I can stash even more cash away to buy up my next property. I've heard one way is I could pick up a 40 year mortgage. Not sure how I feel about being in debt longer, but at the same time I feel like this would allow me to save up faster to get more property. Then eventually save up and pay it all off. I'm a pretty frugal guy so I don't like to stretch myself too thin. So with that, are there any alternative solutions? Another thought I had was maybe finding a hard money lender, let them pay off the mortgage and then just pay them back? Again, not sure how realistic that is. Please let me know your thoughts! I'd greatly appreciate it :DThanks!!

Account Closed · Answer

@Brian Johnson there are a lot of factors at play. It depends on your credit and current interest rate to see if you would be able to get savings. Can you share for the community a bit more information about your current range of credit and the interest rate and principal on the loan. Once we know that, it will be easier to make recommendations. However, the most basic recommendation I could make would be to get a Refi + HELOC. Refi at the lowest rate you can get and find out how much HELOC you will be able to get. Often times you will be able to get a HELOC with interest only then you can self amortize by paying extra.

Hai Loc · Answer

First thing that pops up is to extend the amortization as you mentioned to 40 years.. But that may require a refi.. Your 800 Fico should help you easily to attain that

Brian Johnson · Answer

Thanks for reaching out David! My credit score is right around 800. My current interest is 4.75% and the principle remaining on the duplex is 258k. If there is any additional information that would help please let me know! :)

Account Closed · Answer

@Brian Johnson it is going to be hard in the current interest rate environment to get a lower rate than 4.75% unless you do a variable mortgage like 3/1 ARM or 5/1 ARM. That is a risky proposition considering interest rates are likely to go up at least twice this year. Your best bet is looking into 3/1 or 5/1 ARMs at local banks. It may be possible to do a piggy back as I suggested above where part of your mortgage is regular Amortization as you have now, then part of the loan is a HELOC that is interest only. The only probably is the HELOC will be at a higher interest rate so in the long run you will not be gaining much. Therefore, my recommendations are to either do a 40 year loan as mentioned by Hai or look into a variable rate mortgage, but both options are expensive or risky if you plan to hold the property in the long run

Marcus Auerbach · Answer

Brian, stay with your 30 year fixed. You have not found a good answer yet, simply because there is none. You have interest and principal payments. If you increase your amortization to 40 you reduce your pay down and increase your interest rate. Both are not in your best interest. BTW Wayne is right, you are doing pretty well living in a 1600 place for 700. I suggest focus on additional income. Could you rent out a garage? AirBnB a room? Start a side hustle and make some extra $$?

Wayne Brooks · Answer

The 40 year term would be self defeating “...get a lower payment to save up money and then pay it off in full.....” paying more Now will be Less than paying less now and paying extra later. A HML loan is just crazy even if you could get one (can’t get one on an owner occupied).....the interest rate would be more than double, and a much much shorter term.You’ve got the best loan you’re going to get until rates drop significantly..Also, a 40 year term would only drop your payment by $100-$150/mo and cost a Boatload more in interest.BTW, you’re not supposed to be anywhere close to breaking even living in a duplex, 50% vacancy.

Scott Schultz · Answer

Im never a fan of longer amm's the extra you pay over time is astronomical, and in the event of a downturn your equity position could trap you in the property if the need arises for you to move or need to liquidate. sonds like a risky proposition to me.