Cash Out Refi on Investment Property for Down Payment

[Jonathan Peters]

Hi All,

My wife and I own an investment property in California. The home warranty originally purchased as a primary residence with an FHA 30 year mortgage. We have ~20 years left on the mortgage and the fixed rate is 5%. Monthly mortgage is ~$1300 (~$1800 w/ taxes, homeowners insurance, PMI). Our renters pay $1950/month.

We currently rent in NYC and recently had an offer accepted on a condo in Brooklyn. For the funds the down payment on the Brooklyn home, we have been speaking to our mortgage broker about options. He recommended a cash out refi on the California home.

However, the cash out refi we were quoted is at a higher rate (5.5%) given the home is now an investment property. And the monthly payment will go up to ~$2600/month. We'd be pulling out $397,500 and paying down the previous balance on the home of $209k. We'd also pay off our ~$70k of student loan and credit card debt. After closing costs of ~$8k, we'd be left with ~$110k for the down payment on our Brooklyn home.

The 20% down payment on the Brooklyn home is $164k. We have the extra $54k and $30k for closing to toss on top of our cash out for the down payment.

I'm worried about the cash out refi on the California home at a higher rate than we have already. And after reading some posts on here, I'm wondering if we should be considering a HELOC instead. My mortgage broker never brought up that option. Appreciate your input and advice.

Thanks.