Should I cash out refi my home to pay off my rental property?

[Mike Pastoor]

I would like to refinance my nearly 5% interest rate on a multi family duplex that has $85K and 15+ yrs remaining on the mortgage. I can’t find a competitive rate when factoring rates and closing costs because it’s a duplex so I thought about doing a cash-out refi of my personal home. I have a quote to do this and I would save $30k (most all from my rental) over 10 years.

My biggest fear is from a tax standpoint of not having enough expenses to offset income since I would no longer have a mortgage payment. Any advice?

[Sudhanshu Singha]

@Mike Pastoor I agree with @Denise Brown-Puryear that paying more towards your principal so that you can pay your property off quicker is a good idea and will eliminate some hassle and closing costs but in the long run you will save more money if you either do a cash out refinance or a HELOC since your interest rate should be much lower on your personal home.

I do think your best bet would be to try and obtain a HELOC on your personal home and borrow the amount needed to pay off your investment property. That way you can use the your cash flow to pay off your HELOC as quick as possible and if for some reason you have unexpected costs you can pull money out hassle free which would not be the case if you were just paying extra principal payments on your current loan or if you refinanced your personal home. The trade off would be that your interest rate would be higher but I think it is worth it in your situation where you want to pay off your property as quick as possible.

You are correct in assuming that your tax liability will be higher since you can only deduct the interest portion of your payment so your extra savings will be somewhat offset by having a higher tax liability but that will differ year to year.