Should I refinance??

Question

I have a duplex that is currently on a 30 year loan at a rate of 4.875%.  I currently owe $129,600 on it and my monthly payment is $1200.  I have 18.7 years remaining left on this loan.

I have been shopping rates and have been quoted a rate of 3.5% on a 30 years for this property.  However, fees are around $10K.  It will take my 4 years to pay off the fees associated with this refi.  I would be saving $212 per month which is nice... but I am just struggling with figuring out if this is even helpful to me or not.

I keep going back and forth on this as to what to do.  Not sure if this makes sense to proceed or not...  Right now, I am leaning towards not proceeding with refi and just paying on my current mortgage (possibly paying extra on principal).

What are your thoughts?  Would you refinance if you were me?  I realize everyone has different goals... but I would appreciate some different perspectives in thinking about this.  Thanks!!

-Brett

John Barrett · Answer

@Brett Lee As others have said, it all depends on what goal you are trying to achieve.  If you are looking to grow, this is a good time to be pulling equity given rates.  Another option is to sell the property and have a much large amount of money to put towards another property.

While increasing your level of debt on a property has be done in a careful and deliberate way, I find having more cash available gives you more options to seize opportunities.  I think it is likely that access to capital will likely become more difficult as the economy continues to struggle.  This could make it harder for you to access the equity in this property at a later date.

No one knows what the future holds so all you can do is make the best decision possible based on the information available today.

Best of luck,

John

Nicholas Weckstein · Answer

Glad I can help, @Todd Rasmussen is not wrong either. just depends on what your comfortable with and what you can manage.

Todd Rasmussen · Answer

@Brett Lee

My advice for someone who isn't sure they will invest all of the savings successfully, would be that $212 a month isn't worth resetting the repayment period.

Now, if you are confident that you have the discipline to reinvest that $212, then I would disclose that if you reinvested your $212 a month at 6% return you would have $88,222.42 at the end of year 19 and $206,596.75 at the end of year 30. 6% is a very modest return for a successful real estate investor, but higher returns will come with higher risk. I think a reasonably successful real estate investor should be able to make that $212 a month worth more than a million by the time you make your last mortgage payment.

Brett Lee · Answer

@Nicholas Weckstein

Thanks I am leaning towards what you are telling me.  Just wanting extra advice and perspectives👍

Nicholas Weckstein · Answer

Is this a cash out refinance ? or just refinancing the current debt you have? seems to me if you have 18 years left your close to the half way point of your mortgage. I don't think it makes sense to JUST refinance for another 30 years to lower your payment 200$ on a place that you've already had 12 years.

you might also find that the 15 year rates are even LOWER. so what would happen if you refinanced the remainder for 15 years at say 3%?

unless your looking to take cash out for something else. I don't see the benefit in paying into a mortgage for a total of 42 years just to save 200$ a month for 30 of them. which is $72,000 LESS but you've already paid more.

I think it would make more sense to see if you can adjust your mortgage to have a payment that is roughly the same at a shorter term then to extend 30 years

Brett Lee · Answer

@Brett Lee

Update...

After shopping rates I was able to get a 2.99 rate on investment homes.  Pulling 165k off rentals as long as they appraise high enough.

My thoughts are I will never be able to borrow money this cheap and will be able to reinvest the money to get greater return.

I still dont know exactly what will happen with housing market but do not feel bad stripping some equity from rentals.  Plus i will still make $550 per month profit

Brett Lee · Answer

@John Barrett

I appreciate your thoughts thanks John.

Adam Taylor · Answer

@Brett Lee what is it worth?

Brett Lee · Answer

@Todd Rasmussen

If I didn't find a good deal with the equity I could always recast the loan so my monthly payment is less.  I would be at a better interest rate than current but the toughest thing is that it would still cost me about $10,000 to do that.  I just wish I had a crystal ball on what deals will look like in the next year or so

Brett Lee · Answer

@Todd Rasmussen

My personal thought is that real estate is going to drop in price considerably and the next 6 to 9 months. Currently I have access to a hundred and $ $110,000 cash and can pull another $90,000 out at a rate of 3 and a half percent. However the market that I am in is Seattle and you can't buy anything for around $200,000. I am mulling over the possibility of freeing up as much cash as possible in case of some Screaming deals come available. However that is just my speculation. Conversely as long as I have good credit and enough for a downpayment I could probably still qualify for a rental. Just not a screaming deal that would be all cash

Should I refinance??

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