How to finance our BRRRR?

[Anna Milligan]

I'd love some input on financing options.We bought our first BRRR using cash and we are ready to do a cash-out refi.I've talked to one bank who has given us two options.Option one is a 75% LTV, 30yr fixed, 4.75% and we can get $80,625 back out for a $420.58/mo payment.Option two is a 80%LTV, 5/1 ARM, 3.25% and we can get $86,000 back out for a $386.18 payment.

How do we decide what is best for us?In the short term, the 5/1 seems great, but with the new president and economic changes expected, I feel confident in interest rates increasing.We could be in major trouble in 5 years.On the other hand, we have the 30yr fixed option at a dramatically higher rate. My jaw dropped when he said that was the rate.He said that he had to add points for the fixed rate option because of “loan level pricing adjustments” - 0.25 for “credit score/loan to value,” 2.125 for “non owner occupied,” and 0.50 for cash-out. The rate of 4.75 is reflective of “building the adjustments into the rate” instead of coming to the table with ~$2300.

I'll also add that we want to buy another one or possibly two rentals in 2017.The mortgage guy I'm talking to is pushing the 5/1 ARM because he'd want us to roll multiple investments into a blanket mortgage product that he has within the first 5 years.Seems to make some sense, but I'm not 100% confident he has our best interest in mind.

[JD Martin]

4.75 is not unusual for investment property right now. While no one can say where rates will go, we are at historical lows for a very long time. If you go with the ARM you're buying a big gamble for $2k. If you don't plan on holding it past 5 years, well, the answer is obvious.

At a minimum, you should discuss with multiple banks. I have used 3 different banks this year alone. There's no rhyme or reason when/if the bank is prepared to do a deal, as it is going to depend on a lot of information you can't see going on in the background.