Cash-Out Refi Analysis

[Sean Bozigian]

Hi everyone, 

I've been kicking the tires on a cash-out refinance to continue to scale for quite some time. With the recent rate cuts, I decided to jump on it a bit earlier than anticipated. This is my first refi and I'm looking for some advice in helping evaluate this scenario. 

I purchased a duplex in December 2018 for $260,000 that I'm currently house hacking. Between market appreciation and forced appreciation (cosmetic rehab), my conservative estimate on the property is $310,000. My current interest rate is 5.25%.

I have the option to buy down the new rate to 3.625% and save $161 per month on my mortgage payment. The kicker is that closing costs would total close to $8,500, leaving me with roughly $15,000 cash back in pocket. I plan to use all of the cash to help fund my next cash-flowing property.

The break-even on the closing costs is 5 years when factoring in the mortgage savings. I have no plans on selling this property anytime in the foreseeable future, so when I look it at through that lens, it still makes sense. I have a lender that I trust and have worked with in the past and we've worked through a couple of different rate options and this appears to be the best value. However, I just have some speculation when it comes to the closing costs. I wanted to air this out and get some opinions. 

Thanks in advance!

Sean  

[Guifre Mora]

Originally posted by @Sean Bozigian:

Originally posted by @Guifre Mora:

With the information shared its hard to give you an accurate opinion. Seems the $161 is to low when you cut the rate 1.625%

 What is the loan amount?

Leftover payments on the current loan?

New loan amortization 30 years? 

My current and new loan will be 30 years. My original loan balance is ~$205,000. The $161 takes into account a fairly significant tax increase for 2020 as well.  

 Your closing cost is 4.14%. On average, refinance closing costs range from 3 percent to 6 percent of your loan amount (again, depending on your location and your lender). It will take you 4.4 years to recuperate the closing costs. 

By reinvesting the 15K you should be able to offset the 4.14%. You need to find a property that will give you 8-14% ROI