Should I get a business loan to pay off 2 houses?

[Ryan Prange]

I have 2 long term rentals both at 7.5% interest rates.

1. estimated value: $950k, outstanding mortgage of $574k

2. estimated value: $900k, outstanding mortgage of $514k

#1 cash flows nicely for me at $2500/mo, but #2 leaves me at a $400 loss each month, mainly due to the interest rate. I'm wondering if anyone has any creative ideas for how I could consolidate 2 loans into one that MAY have a better rate. I have a good income and credit score. My loan broker tells me to not even think about 15yr mortgage (i don't know why?). So I'm wondering if I was to get a business loan based on the rental income of the properties and secured by the properties themselves. Is this a thing? I'm still new at this and I own the houses in the name of my trust, I haven't set up any sort of business entity for them yet. I'm happy to pay someone's consult fee if they can help me towards refinancing to a better rate that helps me cash flow on both properties. Thanks BP community!

[Theresa Harris]

If you are concerned about cash flow right now, the longer your mortgage, the lower your mortgage payments will be.  Ask your loan broker to run a few scenarios with 25 year mortgages.

[Nicholas Coulter]

Quote from @Ryan Prange:

I have 2 long term rentals both at 7.5% interest rates.

1. estimated value: $950k, outstanding mortgage of $574k

2. estimated value: $900k, outstanding mortgage of $514k

#1 cash flows nicely for me at $2500/mo, but #2 leaves me at a $400 loss each month, mainly due to the interest rate. I'm wondering if anyone has any creative ideas for how I could consolidate 2 loans into one that MAY have a better rate. I have a good income and credit score. My loan broker tells me to not even think about 15yr mortgage (i don't know why?). So I'm wondering if I was to get a business loan based on the rental income of the properties and secured by the properties themselves. Is this a thing? I'm still new at this and I own the houses in the name of my trust, I haven't set up any sort of business entity for them yet. I'm happy to pay someone's consult fee if they can help me towards refinancing to a better rate that helps me cash flow on both properties. Thanks BP community!

 Not sure of a product out there to help this but 7.5% interest rates sound like you either refinanced recently?

Even with that being said, your holding cost is still positive on the second one. 27k of appreciation at 3% annualized. would cost you 4800 to get that not including loan paydown or the tax benefits of holding it at a loss each month. 

[Andrew Kiel]

I'm not seeing any great options here, yet. Combining the loans isn't likely to yield any savings, and more likely would cause additional problems (commercial/business loans have more "harsh" terms than residential). A DSCR (Debt Service Coverage Ratio) loan may be an option; certainly for the one that cash flows, and possibly for the other based on lender and rate at the time. Let me expand the thought - most DSCR lenders offer a lower rate in exchange for a 3 or 5 year prepayment penalty. With your equity position and based on credit you may be able to get into the mid 6% or so range now. If rates come down a bit more, this would likely be an even better option.