ARM 10/1 financing on rental

[Gabriel Smith]

Hi everyone!

I feel like this might be a dumb question but I've got to ask anyway. 

Im looking at financing options to pull about 20K out of a rental. I have a hundred thousand in equity. My local bank presented me with 3 options, a HELOC, cash out refi and a 10/1 ARM at 4% . Not knowing what the market is going to do in 10 years and possibly being at a peak right now it seems obvious an adjustable rate mortgage would be pretty risky but I'd like others to weigh in. I'm new to investing and I want to make the right decision and weigh out all of the options.

I'm near Fort Collins Colorado if anybody knows the market. 

Thanks in advance!

[Russell Gronsky]

@Gabriel Smith @Marshall Easlick @Bill S., what you guys are talking about, in regards to getting out of PMI without doing a refi is called recasting the loan.

Each bank has it's own rules on how to get this started so you'll have to talk to your bank for details but the common approach is to make a significant payment on the remaining balance (5-10% of remaining balance) and then the bank will re-amortize the remaining principal over a new 30-year period, keeping everything else about your loan in place. This can significantly lower your monthly mortgage bill and get you out of PMI if you have at least 20% equity in the dwelling.

If you don't have 5-10% to put down on the principal at once, perhaps the bank would be willing to let you put, for example, $5,000, into a 12-month CD. They can loan out that $5,000 about 9 or 10 times over so essentially, you would be giving them about $50,000 guaranteed for the next year. Maybe they would be willing to take that? Or, maybe you agree to open a checking account and move your W-2 job direct deposit there. Maybe that will also appease them? You've got to wheel and deal.

Anyways, once the recast is done, you can put a HELOC on the equity in the property.

I agree with Bill S., do NOT replace things that are working fine.....in my 13 years as a landlord, I have never once had a potential tenant back out of renting because my furnace was over 15 years old. Don't read into the "recommended replacement timelines" on furnaces, roofs or anything else for that matter. It's a marketing ploy to make you buy new, expensive things. Periodic maintenance, absolutely. Do not defer maintenance, or else you will have to buy new. But buying new because you were told your equipment is out of date...nah. Of course the guy selling water boilers is going to tell you that you need to replace yours since it's "old". Most articles you find online are nothing more than marketing, disguised as advice. Take it with a grain of salt.