Refinance Primary Residence to Fund Downpayment?

[Account Closed]

We have been in our primary residence for 8 years and, after a call with the bank, I can access around $125,000 of equity. Assuming 25% down, I have around $500,000 of purchase power. This would be accessing around 50% of our equity.

If we wanted to we could likely access around $150,000 more for total buying power of around $1.1M, but I feel that is too large of a mortgage to carry right now on our personal home.

Accessing the $125K would require refinancing our primary residence. Our mortgage matures next October, at which point the rate would of course reset. Current rate is 3.44% fixed.

In my day job, I could likely save $125,000 cash in three to four years, which would not require a refinance or swallowing the cost of "reborrowing" against our primary residence.

What are the benefits and pitfalls of a refi, to put a downpayment on an income property?

I've got quite a few solid people I can ask for advice, but this is the internet, and if you don't ask Reddit, you're missing out on tons of hilarity.

Any advice greatly appreciated. Virtual beers for you.

[Benjamin Aaker]

Hi James,

Refi benefits:

You get a large chunk of tax-free money to use as you wish.

Refi Pitfalls:

Your interest rate will undoubtedly go up. Your principal will increase as well, so your monthly payments will increase.

You get a large chunk of money, but you don't immediately have a deal to spend it on, so it sits in the bank, making 0.1% while you pay 5% for the privilege of the bank sitting on it.

I'd like to suggest the HELOC. I'm a huge fan of this product. The rate will be higher than a new mortgage, but it is basically an account that is ready when you need it. You aren't paying interest on it until you use it. Talk to your banker about this possibility. There's a small annual fee and you will have to do an appraisal (just like you would for a refi).