Ideas for Cash before Refi on my Primary Residence

[Bradley Langenberg]

Here is the gist: I plan on refinancing my primary in 5 months. What could I do with my liquid cash in the meantime?

Background(Reason for refi and timing of it): I live in my primary residence that I bought in March 2019 and want to refinance in April 2022. I utilized a HHF (Hardest Hit Fund) government loan of $15k that acts as a 2nd mortgage at 0% interest, automatically forgiven (payed down) 20% on its anniversary each year for 5 years. It comes due if I move, sell, or refinance. In other words, I owe $3k less each year that I live here. At the time of this post (November 2021), I would owe $9k if I refinanced. If I wait 4 months until March 2022, I will only owe $6k. At that point, I want to refinance and take advantage of the low rates (hopefully still low), as well as start the clock on my last year at that house so I can move and get another primary residence loan in 2023 and keep the low rate as I convert it into a rental(estimated rent $1200, mortgage payment $700). It makes sense to abandon that $6k because the interest rate on the current loan is 5.75% and I suspect that when I refinance, I can get it down to ~3%. The current first loan principle of $68k, after restructuring with no cash out, would save me about $1800 annually just with the interest rate reduction. That is a <4 year break even on the $6k cost but with continual savings thereafter, not to mention a reduction in my monthly mortgage payment. I understand there will be a few more grand in refi costs.
I'll do a cash-out refinance and pull up to $60k out without raising the current mortgage payment. I probably won't get that much though because I estimate the current value as $140k, so they may only give me $37k or less at 75% LTV. That money will go towards buying another rental.

Current cash in the bank: $45k and growing ~2k/month
My main question, is what are some creative options to do with my liquid cash during the next 5 months? I understand it is losing its value quickly due to current inflation. 

My ideas:
1. Put $40k prepayment towards my current loan, effectively earning me 5.75% interest on the cash (penny saved is a penny earned). Over 5 months, that will save me ~$950, but it will remove the liquidity of the funds and if the market drops, I may not be able to pull all of it out in the expected timeline. This will leave me pulling out about $80k+ in April that I can use to buy a property all cash and BRRRR, or use as down payments on 2 more properties.

2. Keep it in the bank in case I find a good deal on a rental. In my area, I'm looking for a $100-140k house that would the $45k could be used for as 20-25% down payment and rehab costs. Then, I can still do my refinance on my primary and pull out more to be used in the next deal later in the year.

Any criticism, ideas, questions, considerations or suggestions are welcome. 

Forewarning: These funds are for real estate one way or another. I'm not open to putting them in the stock market (even ETFs), crypto, etc.

Thank you, 
Bradley

PS This is my first post on BP

[Buddy Holmes]

IMHO, I would go for your option #2.  Option #1 sounds good.

Look at your Option #2:

You have already planned to wait 4 months to save 3k on your current REFI

You are increasing your pool of cast at 2k per month, a projected +8k growth in your cash pool.

If you put your cash on that pay down, you say you will save ~1k  (equivalent to 1/2 month) and you take your self out of the market for your second investment for 4 or 5 months.

Just be sure to hold your horses for a new investment that has solid cash flow and not be depending on current appreciation rates.

Your focus on REFI makes me wonder?

Cheers