Considering Refinancing Given Historic Lows

[Parker Maher]

Hello all,

Thanks for taking the time. 

My wife and I moved into our primary house in Kansas City, MO, in March of 2019. We then had the opportunity in October 2019 to refi our rate down from 4.5% to 3.5% - which we did. Now we're considering refinancing again. We would like to eventually move out of this house and rent it out if the numbers make sense. Current average comp rent rates in our area according to Bigger Pockets Rent Estimator are $1,250. Our current mortgage is $1,487 and we have a 3 bed 2 bath. We have an unfinished basement where another bedroom and full bathroom could/will be added. 

It'll be approximately 3k to close on another refi. Here are the options from the lender we're in contact with:

- 30 yr at 2.99%; decreases mortgage $66

- 20 yr at 3%; increases mortgage $232

- 15 yr at 2.75%; increases mortgage $509

Should we refi? Should we sit where we're at? Am I crazy to even consider renting this house out? Would love to get thoughts on this. If we're planning on leaving very soon, obviously, it wouldn't be smart to refi. Ideally, the numbers work later on and we can rent it out. Looking forward to input and discussion!

[Scott Passman]

The numbers you present don't really make a compelling case to refinance, unless you are very confident that you won't be selling the house for a long time.  This would be the 3rd time paying closing costs in the course of 18 months.  Your best scenario of the 3 listed is to take the 30 year at 2.99% but even then if you are saving $66/mo it will take you ~45 months to recoup that upfront closing costs, and you are likely still working to recoup the closing costs from the previous refinance which just adds to it. 

Renting (long term) at this time doesn't appear to be a good option and unless finishing the basement and adding a room significantly increases the rent it can command it doesn't seem feasible in the near future. You are stating the market rent is about $200 less than what your mortgage is so you would need to find a way to increase monthly income to at least $1650+ to possibly even break even.   Perhaps as a short-term rental it could work if you have a good location and local regulation for that kind of thing.