30 yr or 20 year cash out refinance

[Cindy Whit]

Hi All!

My daughter and I are brand new to this group, and have a question on how to finance our (her) first property.  She is 18 and has chosen to start a construction/real estate business instead of going to college, and my husband and I want to give her money that we would have otherwise paid for her college, so that she can pay cash for her first property, and not have to worry about getting financing, etc.  We are planning to refinance our mortgage, and take cash out, to give her the money in a lump sum.  We currently have a 20 year mortgage.  My question is, should we refinance for 20 years @ 2.95% interest or 30 year at 3.25%.  Fees, etc would be the same.  I've always been taught to pay down debt, so choosing to finance for longer is foreign to me!  If I hold for 30 years I'll pay about $150,000 more in interest over the life of the loan so I just can't wrap my mind around that being a better option.

Thanks so much!!

Cindy and Grace

[John Morgan]

@Cindy Whit

I was in your situation 4 years ago. I was laser focused on paying off my mortgage. Mainly for peace of mind. Then I learned about leveraging in RE by listening to a few podcasts. I crunched the numbers on a napkin real quick and saw how I could pay off my home over a longer period of time, but reinvest the money from a cash out refi into other cash flowing appreciating RE. I’ve accumulated over 1.5 million in equity in RE properties since then and have no regrets refinancing my house. I still owe 167k on it. But I’d rather have my rentals earning me 7k/month while I sleep and a mortgage on my primary vs only having a paid off house which I was on track to do quickly. I look at it as good debt building me a lot of wealth over time by doing nothing but collecting rent and letting my tenants pay off the mortgages. But I understand some people would rather have a paid off house so they don’t have to pay a $1,000 mortgage every month or whatever ASAP. I’d rather have to pay that 1k mortgage but be making 7k on the side with the $ I invested. And in 10-13 years when most my rentals will be paid off, the cash flow will be 13-14k/month after expenses thanks to doing cash out refis to redeploy equity from my primary and other rentals that went up in value. Numbers don’t lie. Refi til you die if you want to build up massive wealth. Otherwise pay everything off and join the Dave Ramsey crowd. Lol