Refinance cash-out of primary to pay off investment property

[Sanjeev Kaushik]

Hello BP,

I am looking to refinance my primary home to reduce my monthly payments. Since I have enough equity, I am exploring to pull extra cash and pay off the mortgage of one of my investment property which is at a higher interest rate. Here are the details:

Current primary home balance: $227000

Current mortgage term: 2.675%/15 Years, started in 2015

Current P&I: $2200 (based on original loan amount)

Current Investment property balance: $48000

Current mortgage term: 6.5%/30 Years

Current P&I: $358

Option 1: Refi with primary home mortgage balance:

Refi amount: $227000

Refi term: 3.675%/30 Years

Refi P&I: $1042

Option 2: Refi with cash out of 48k to pay mortgage on investment property:

Refi amount: $275000

Refi term: 3.675%/30 Years

Refi P&I: $1262

If I go with the 2nd option, I will be paying extra $1262 - $1042 = $220, but I will be eliminating $358. So net saving will be $358 - 220 = $138/month

One impact I think of is the tax return of that property in that state. Interest will be computed against my primary instead of investment property.

So looking at the numbers it makes sense, please share if I am missing something else. Any red flag?

[Jeff Copeland]

You didn't mention current market values, so we can't reality check your LTV.

But even though you have a relatively high interest rate on the investment property, with such a low balance of $48k, you aren't looking at a big savings in terms of real numbers...You might only save $60 to $80/mo if you refinanced it at 4.5%. 

I mention that in order to throw out a third option: Refinance your primary, keep the rental as-is, and use the proceeds as the down payment on an additional rental property at current interest rates.