Refinance or Pay Off Mortgage?

[Ericka G.]

Hi all,

Need some advice. I moved into one of my rentals full time. It was purchased on a 5/1 ARM at 3.875% about 5 years ago and started out as an accidental house hack due to a temporary out of state work assignment. Our initial plan was to live here for 5 years and then move to a nicer primary residence. But, plans changed and I've decided to stay here. I achieved financial freedom about 4 years ago but still work a W2 that I really like because...why not?

Loan is now due to adjust to 5.125% and my monthly payment would jump up around $100/mos if I stay with current mortgage provider (who I detest).

Details...

3/2.5 townhouse in trendy, walkable class A area

• Original purchase price: $142k
• Current value: ~$300k
• Balance owed/payoff amount: $112k
• Current monthly PITI: $820/mos @ 3.875%
• HOA: $390/mos (includes water, trash, sewer and all exterior maintenance + pool and clubhouse access)

Option 1: refinance with new lender

• 4.375%, APR 4.663% - 30 year fixed
• PITI: $840/mos
• HOA: $390/mos
• Closing costs: $4-6k (lender says these will be rolled into the loan/absorbed by appreciation so my out of pocket will be very little)
• I’d been moving ahead with this option but noticed that I’d be paying $30k in interest over the next 5 years and the total interest percentage over the 30 year loan would be 79.92% :(

Option 2: pay off loan balance of $112k

• Monthly payment: $390/mos HOA + insurance and utilities other than water, trash, sewer
• I’d still have six figures+ of cash reserves after paying off the loan
• Save $30k+ in interest plus $4-6k in closing costs

Option 3: allow loan to adjust to 5.125%

• PITI: $950/mos
• HOA: $390/mos
• No closing costs, still paying principal down at a good clip
• Downside here is that it can keep adjusting up every year and I detest my current loan provider, so I hate to keep giving them my business

I know many will recommend a cash out refi to buy more property or invest, but I already have ample cash from selling a property and my portfolio is in a good place where my rentals cover my monthly expenses if I were to quit my W2. I’m also self-managing 7 units (all but one owned outright). I have been looking to possibly add 1-2 more or a small multi but haven’t seen any deals worth moving on recently.

Any recommendations on the best course of action here? What would you do and why?