Cash-Out Refi or Refi to Lower Payment
I have 3 properties (CA & NC). Should I refi and get extra cash immediately or should I refinance and lower my payment to build better cash flow?
CA House 1 rents for $2,310 my mortgage is $1,362 @ 6% ARM. PM takes the 10% of rent
NC House 2 rents for $1,350 my mortgage is $940 @ 3.5%. PM takes the 10% of rent
CA House 3 rents for $2,541 my mortgage is $2,290 @ 3.75%. PM takes the 10% of rent
I’m still military so I have my W2 and Overseas. So not comfortable buying right now if I come up with a lot of cash for my next property. So should I just lower my mortgage payment and build cash flow and save for a rainy day? Or Cash-out refi, but have that money just sit in my bank account until I return to the states? and Then buy another rental property once I return?
I'm confused at the question. How will a refinance lower your payment in this scenario? Those interest rates are never coming back. You should look into getting a HELOC on those properties if you need the money.
@Jason Taken I was looking at different refinance calculators on my mortgage company website. One example had me lowering my payment for about $120 (7.5%) a month by refinancing my current balance. But by only reducing $120 monthly, I would be adding about 150 months to the loan term.
A 6.5% would only make a small increase of lowering payment by $220. But in both I would be starting all over again for 30 yrs
What are your long terms goals with the property? Do you want to keep them while you are overseas?
To make an informed decision to buy, sell or refi one key metric is to look at the return on equity (ROE) of your investments. The NC house and CA house have really good interest rates that you won't see for a while. However, insurance expenses in CA aren't going down anytime soon so that could affect your profit margin.
@Caitlin Logue hello. I have about 2 more years overseas, so I will keep them for now. Once I return I have been thinking of doing a 1031 Exchange to maybe get out of single family homes and into a property with multiple doors. I’ve owned my CA rentals since 2004 and 2015. The NC is since 2019, so I can hold on a bit longer. For the past 6 years I’ve been very aggressive of paying down my mortgages and built some good equity. Now it’s time I start building some cash reserves. I’m having some big tickets items expenses popping up, replacing at my rentals.
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@Norberto Murillo Jr, If you can stomache the current cash flow now you will be far better off rather than refinancing to a higher interest just to get a lower payment.
right now those loans are paying off quickly because of the age of the loan and the amortization of it. More of the monthly payment is going to principle which is yours. You just can't access it yet.
If you refinance you will get a lower payment but you will be paying more% wise in interest. So you'll actually be losing money over the status quo. All for the sake of a slightly lower payment.
The point is that you are building future cash flow right now. Its just not going into your bank account yet. If you can make it work as is now then hang in there. Keep saving money. and when you come back sell a house and 1031 into multiple purchases because the loan will have been paid so low that your equity will be large.
@Dave Foster thank you for that information. I guess I’ve been re-assured by all to hold on. With these high interest rates, now is not a good time. I will definitely check out your videos.