Hi, Quick question about cash out refis... Let's say I purchased a SFH in 2015 when interest rates were 6%. Now, I want to do a cash out refi at this moment when interest rates are 4%. When I do the cash out refi, do I keep my 6% interest rate or does it go down to 4%? Thanks so much!

@Jimmy Lieu keep in mind that 100% of the interest you have paid to date will go to waste. A refinance means the "clock" (amortization period) is reset. Try this, calculate total interest cost of 2015 loan MINUS total interest cost of 2020 loan MINUS total interest paid to date. that will give you the NET interest savings. Most loan officers forget to subtract the interest you've already paid.

Discuss pros and cons of both with your lender. We found cash-out refi on investment property carries a much higher interest rate, less LTV (I think 70-75% max), higher fees, and harder to find a lender than a cash-out refi on a primary home, so that is a factor as well. Also, in the last housing crisis, many banks froze HELOCs suddenly, so that is a consideration as many were counting on accessing it for either new investment or emergency funds but found they couldn't.

@Jimmy Lieu yes, after the refi it's only the 4%. The old loan no longer exists. You have a new loan on which you're paying 4%. On your other question, the answer is -- it depends. Those are two different products with different terms and different interest rates. A HELOC is like a credit card.

Thanks Nicholas, okay, so just making sure but in my example, that means after the cash out refi, it would be a 4% interest rate for the property? So if that is the case, would you say it's better to do a cash out refi in a low interest rate economy then (in comparison to a HELOC) because you'll be able to lock in a much lower interest rate?

@Jimmy Lieu the old loan is paid off by the new loan. So the old loan is gone, and you're under the terms of the new loan.

Confused about cash out refi interest rate?Confused about cash out refi interest rate?

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Alexandre Marques dos Santos

Rental Property Investor

Alexandre Marques dos Santos

Rental Property Investor

Replied November 07, 2020 21:56

@Jimmy Lieu

When you refi, you enter in a new contract. Using your numbers, you had a contract paying 6% interest and entered in a contract paying 4%. If the amount and tenor are the same the result will be a lower installment.

To tell you its worthy, though, you beed to take into consideration of the cost of the refi.

If the actual debt has a good amount outstanding for a reasonable tenor, i tend to believe its worthy, but hard to tell without knowing those factors ( including the cost of refi)

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