To Refi or not to Refi....that is the question!

[Derek Gagnon]

My wife and I recently(June 2016) rented our home in MA and purchased a new home in a better school district in NH. We have what appears to be great tenants and a 2 year lease agreement in place that earns us $400 in cash flow each month. The loan is a pre 2013 FHA product with PMI set to expire in early 2018. I am considering refinancing now to remove the PMI, which costs us $330 each month, because we have gained significant equity through appreciation and by finishing our third floor(added 2 bedrooms and a bathroom). I am also considering cashing out some of the equity to put towards another investment property, although I can only take around 11k if I am going to avoid the PMI on the new loan. Our current interest rate is 3.25% and the new rate would be 4.25%. My wife is concerned about the long term costs associated with the refinance, while I am more focused on the short term benefits of additional cash flow, decreased monthly liability, and access to more investment capital without having to take on another loan. My thought is that the increase in cost from the rate increase will take nearly 10 years to equal the savings we will realize over the next 18 months from removing the PMI. Although it is possible, the chances of having solid renters for the next ten years are not in our favor and I plan to upgrade through a 1031 exchange when the time is right. My wife is very attached to the home and cannot see a situation where we would let it go. I am hoping someone can help us make the best financial decision by looking at everything objectively and without bias.

We would be forever grateful for your support! Please help us see things clearly so we can make the best decision possible for our family!