BRRRR - Options for the R that is Refinance

[Bromley Palamountain]

Hello, I have two rental properties. Each property has an original primary home mortgage. My strategy has been to buy a home as a primary. Live through the renovations and pour in sweat equity in and then (after a year or so) rent them out when they are finished being rehabbed. I've done this now twice and would like to do a cash out refinance to build up a new 20% down payment for my next deal. The mortgage broker I'm speaking with quoted me 4.875% and mentioned the rate is higher than what I'm accustomed to because these are being refinanced as investment properties. On my two properties I currently have a 3.75% loan and a 4.375% loan. Does 4.875% sound about right? Any suggestions to ensure I reduce the rate and maximize the cash out? 

[Chris Mason]

Originally posted by @Bromley Palamountain:

@Paul Defngin @Melvin List - Thank you both for confirming I was on the right track with this loan! Another side question: The loan amount is $650,000. Do you know if Fannie / Freddie have tiered basis points adjusters as you go up into the higher dollar amounts? Or would it be more based on LTV. Currently, with this loan I'd be at about 60% LTV. Would there be an argument to be made to go any higher?

As others said, LTV and FICO and all that are factors. If that's in a high cost of living area, it's in the "high balance" band where interest rates are higher as well.

I just threw a random scenario at an arbitrary lender. The "high balance" cutoff is $484,350. So I did $484,350 and $484,351.

Holding constant everything but that $1 in loan amount, the rate bumped by 0.375%.

Actually doing the mortgage broker thing and shopping it extensively might yield a lender where the bump is only 0.25%, or 0.125% with some minor amount of points added. That might take an hour, a prerequisite to get that hour out of me is a fully ratified purchase contract in my email inbox. :)

Note that all the online advertisements, the Freddie Mac index, journalists, and everything else, are always using loan amounts of $484,350 and below. 

Once in a blue moon we do actually get a scenario where I tell someone to put down (for example) 5% plus $726, or 25% plus $4,333, or something wonky like that, just to get that loan amount to exactly $484,350. Generally buying down the rate v putting more down will be 3x as impactful on the monthly payment, but there's an exception when you can get a loan across that line in the sand with a couple grand more invested.