Increase interest rate for a cash out refi, or just keep saving?

[Heidi Kenefick]

I bought a 3/2 SFH as a primary in 2015 for 136,000, the interest rate is 3.375% and it is on a 7/1ARM that is up for adjustment in May 2022. The value has grown to $200,000 so I have about 93K in equity right now.

I want to use some of the equity towards a down payment for a second rental in the same area. I got some quotes yesterday and to do a cash out refinance as an investment property the rate is between 4.6-5%. I want to pull 30k out to put towards the down payment.

Alternatively I could just keep saving or I could take a loan against my retirement savings to get started.

Is it worth it to do the cash out refinance when the interest rate will go up by 1.3-1.7% ? Or should I just leave it until May when I find out what the new interest rate will be (it could go down), keep saving or look into a different strategy?

Thanks!

[Heidi Kenefick]

@Jaron Walling

My thoughts exactly on the 401k loan, plus then I miss out on the gains in the market and that isn’t something I want to miss!

I called a few lenders and I can buy down the rate to make it make sense, which the lender I spoke to yesterday didn’t mention as an option. He actually told me I would be better off using a local bank than them. Haha.

With the buy down I can beat the current rate and the break even point is about 6 years. Since someone else is paying it down, my cash flow stays the same, and I get cash out to put to work elsewhere this seems like the best option.