How should I refinance my resident home?

[Bruce Zeng]

I just discovered BiggerPockets several months ago, but already learned a lot from you guys. I hope you can give your thoughts in my situation.

The current mortgage in my resident home is 2.2% 5ARM (loan amount $160k), which will be floating rate in July, and we plan to refinance it to avoid it. In the past years, we made an expansion in the house. With the expansion and raising home value in my area, we estimate the house is worth about $400k. (Besides the resident home, we still own several rental properties with mortgage rate range from 3.75% to 4.75%)

Now the loan agent provide the following terms and rates:

• 3.25% at 15 yrs fixed;
• 4.00% at 30 yrs fix.

My wife is quite conservative, and she hates to pay interest. So she want to just refinance the current loan amount ($160k) at 3.25% for 15 yrs.

However, I have different points of view. By comparing different investment options, I think interest rate at 4% is pretty good, and I want to fully utilize it.

The best option IMO is to refinance 75% of home value (about $300k), so we can get $140k after paying the current loan. Then using this money to invest in rental properties or stock market.

My experience in rental property is that by using the leverage, they can generate 10%-20% of annual return in the first several years, and you can keep the return by refinancing and taking the principal out. So overall, 10-15% annual return is feasible. Of course, it involves a lot of management work.

Investing in taxable account stock market (we have max out all retirement accounts) is a good option too. For a long term investment (15-30 yr), the total market return can be estimated at 7% (8% minus 15% capital gain rate). One can say there are some volatility, but time will greatly ease them. The good part is that we can always take part of the money out if we really need it (try not to though).

The OK option is to refinance 75% of home value (about $300k), then use $140k (after paying $160k) to pay off the mortgage in rental properties with 4.5% &4.75% interest rate. It is a guarantee 0.5% return on $140k loan over 30 years.

The worst option would be just refinance $160k.

Remember, the interest we pay out will be tax delectable, no matter for resident home or the rental properties.

In term of mortgage term, I prefer 30 yrs, so we will have more cash in hand to invest. But I am also fine with the 15 yrs.

I appreciate your inputs.