Pros/Cons or Refinancing 6 Months In

[Blake Piedrahita]

I purchased a 2 unit home in March for $322k and have spend 6 months renovating.  The property was so cheap because it wasn't in great condition and was listed at about 1,200sqft, but was mismeasured and is actually about 1,600sqft.  I'm estimating that if I did refinance that the new appraisal would be somewhere around $400k, but I am conflicted on whether to do this now or to wait until year 2 (I'm planning on living here for 2 years and then renting it out so I won't have to pay capital gains when I sell in year 5).

I'm conflicted on whether or not doing a refi now is a good idea or not and have thought of the following PROS/CONS.  Please take a look and I'd appreciate any advice or thoughts from the community.

PROS of Refi: 

• - Could reach 80% LTV and get rid of PMI
• - May be able to get a slightly better rate (currently at 3.75apr)
• - Would get a better understanding of the value of renovations in my area

CONS of Refi:

• - Refi fees
• - Would have more equity if I refinance at the end of year 2

[Kyle Deutschmann]

If you are considering refinancing, I would do so when you still plan to live there for at least a year to get the best terms (as an owner occupant). If you refinance when it's non-owner occupied you'll generally be paying slightly higher rates/points than an owner occupied house. Rates are fantastic right now, so if your goal is cash flow then I would look at the monthly savings from a lower rate and by getting rid of PMI, multiply by 12, and compare to the total closing costs (minus any pre-paids and any initial escrow deposit) to determine how long it will take to re-coup the costs. Lets say it takes 2 years for the savings to re-coup the costs but you plan to own the house for the next 10 years then it's well worth it.