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Updated about 13 years ago on . Most recent reply

User Stats

74
Posts
8
Votes
Jeremy D.
  • Investor
  • Grand Rapids, MI
8
Votes |
74
Posts

Refi with an LOC?

Jeremy D.
  • Investor
  • Grand Rapids, MI
Posted

Can anyone help analyze this refi scenario?

I am looking at refinancing 2 SFH properties which currently have 15 year amort, 5 year balloon, 6.625% interest, with just over 2 years left on the balloons. I have 10 properties in total, and these are the two which have the least favorable financing terms and also the lowest principal balances as $39k and $6k. Regardless of whether or not I refinance I am on track to have these mortgages paid off by June 2014, shortly before the balloons come due.

Now, I asked my local lender about refinancing these into an LOC since I am on track to pay them off in about 2 years anyway. My thought is that with an LOC I would have additional borrowing capacity to jump on cash deals if needed, as well as float some of my current renovation projects between construction loan draws.

They offered me a $140k interest only LOC, 2 year term, 5.75% interest. Out of the LOC $45k would pay off the 2 existing mortgages, $2.6k would be used for LOC closing costs, leaving me with $92.4k available on the LOC. They also asked that two of my free and clear properties be used as collateral on the LOC- making a total of 4 properties as collateral, roughly coming to a 50% LTV against the total LOC available.

Any thoughts on this financing scenario? Over the next two years I plan on using existing cash flows from my current portfolio to 1) continue the aggressive debt paydown on these two balloons and 2) purchase an additional 6 SFH or fewer multi-families totaling about $150,000 in total acquisition costs.

The options I see are:

1) current situation- continue paying off the two 6.625% mortgages over the next 28 months. total estimated interest = $4.7k
2) LOC refi- $2.6k in closing costs, plus $2.9k interest over the 24 month life of the LOC equals total cost of borrowing = $5.5k

So basically for the LOC i'm paying $800 in additional costs over the two year period to gain access to the remainder of the LOC ($92k) at 5.75% interest to be used to jump on cash deals, etc. if needed.

It seems like a decent deal- does anyone have any comments, or am i missing anything?!

Thanks!
Jeremy

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