refinace the rental with cash out, paying off primary residence

[Wendy Y.]

Hello,

Would you cash out by refi the rental, paying off your primary residence? Is this a double whammy proposition?

The rental is a 4 units building located in San Francisco Bay Area.

Property Value   Money Owed        Interest Rate

Rental                               900K               210K                       5%

     Primary                            700K               280K                        4.875%

After refinancing the rental, my primary will be paid off. Basically, consolidate 2 loans into one.

                                         Property Value   Money Owed           Interest Rate

Rental                                 900K                  490K                      4.35%

Primary                               700K                  Paid off

My worries are

-- No more tax deduction advantage for primary residence.

-- Rental property interest rate is not tax deductable.

Am I missing anything else?

Thanks in advance.

[Mike Dymski]

If your goal is simply to consolidate two loans, then consolidating two loans into one loan with similar terms has no impact.  Your rental property interest is tax deductible along with all of the other rental property expenses (and taxable rental income).

If you have good credit and no need to use any of the equity from either property, you may want to consider refinancing your primary residence to a lower rate and pay off the rental property loan.  I suggest refinancing the primary rather than the rental because you will get more favorable loan terms for the primary.  You could take $490k of debt at ~5% down to 3-4% if you have good credit.

If you plan on purchasing more investment properties, that is a whole different post and you have a lot of equity here to use.