Your mechanicals and capital expenditures are a lot more important and more expensive to fix than a pretty kitchen. its better to live in outdated kitchen and have a well kept home with updated mechanicals/roof/hvac than one that looks pretty but will start to crumble5.

They have a ton of equity >$100K, <3%, but older home in need of roof, A/C, and water heater in next 5-10 years.

These properties are in the B to A class range, 2002 built so this is the first time needing an AC system replacement.I am curious what everyones thoughts are here, would you go with the nicer system since you will have the property long-term, or is the $1,000 cost difference too steep for you?

Ian,With the limited of info known, the fees do seem slightly steep.

While it's true that locking in rates for a longer term can seem counterintuitive during steep yield curve normalization, you can remove prepayment penalty altogether if you are comfortable with a higher interest rate.

You CANNOT put everything in the lease, like no dancing on the roof.

It was always....black swan event, interest rates never went this high, no one foresaw this, insurance and taxes are through the roof, not our fault.

And some of the biggest repairs not for some time (roof 20, hvac 10, etc) .To me, building a new sfh should allow you to get a bigger discount than what is typically available these days unless you're really getting lucky. 

How will you pay for a new fridge or roof?

The real problem comes in when the unexpected happens, like a roof repair, or a boiler replacement, on top of the negative cash flow.If it was me, I would try to save more, take out less debt, to help with cash flow.