Stuck - Never refinance?

[Ryan Randall]

I got lucky, and bought in 2020. I secured a 2.25% 30 year fixed interest rate on a 4 unit MFH.

Now, I have a significant amount of equity in the property, and I'm wondering the best way to access it (if at all?). 

I'm currently house hacking, but at some point my wife/I would like to buy a house of our own. As part of that, I'd like to tap into some of my current equity, but I don't know that it makes sense. 

I guess I'm asking, for everyone w/ super low interest rates, what are you doing? Just sitting on that rate for the life of the loan? Refinancing? HELOC? Something else?

Any help is appreciated

[Patrick Roberts]

Closed-end second mortgages (sometimes called equity loans) are becoming popular because so many people are in the situation youre in. The NonQM market is starting to offer these products. They will allow you to tap into the equity without having to refinance the existing low-rate first lien. The downside is that these loans are expensive. In my opinion, these tend to be better options than refinancing in short term and mid-term scenarios. Long term is more variable. 

If youre considering a 2nd lien, you'll want to analyze A) the blended rate between the two loans (this will be weighted, not an arithmetic average), B) the amount of time the 2nd lien will be outstanding, and C) the amortization on both loans. Compare the 1st/2nd scenario against a cashout refi on the basis of the effective rate at the end of each year until maturity/expected payoff and the global cashflow. 

The reason is this - if you have a 1st lien, 30yr fixed that is five years in, and you stack a 10yr or 15yr fixed 2nd lien behind it, then the blended rate is going to change every time you make a payment. This is because they are paying down at different rates, and so the effective rate of interest charged per period will change. This is important, because depending on the variables, a cashout refi may give you a lower comparable rate in the first year or two but a higher rate for the remainder of the expected life. Youre planning and use case will then dictate which option makes more sense.