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Learning, Sharing, and Teaching => Investor Alley => Topic started by: rahby1us on May 09, 2016, 10:09:56 AM

Title: Refi and Investing the difference/paying down rental mortgage
Post by: rahby1us on May 09, 2016, 10:09:56 AM
I'm Refinancing my primary residence from a 15 year mortgage to a 30 year with PenFed. They are great on rates and with a 1 time ARM (at 15 years) I am able to keep the same interest rate 3.375% - drastically reducing my monthly payment. [i do not plan on being in this 1 bed condo for another 15 years as we'll need bedrooms for kids. We have appreciated nicely here though in the time since purchase] I am able to refi up to 80% of the value of the home. This should net me at least an extra $45K over the existing balance.

We also own a rental house which is financed at 4.75%. I was planning on refi'ing for the most $ possible , and using that add'l money in a combination of investments. a REIT or two, some lending club, possibly some tax free muni bonds and possibly some Vanguard. All of these investments have projections above the 3.375% (obviously with various levels of risk).

But just yesterday i thought of using some or all of the extra refi $ towards the rental house at 4.75%. This would be a guarantee of less interest paid, no? It seems very obvious but i wanted to appeal to the community to point out anything that I had missed, or any special clauses/provisions i should look for in my rental mortgage deal to ensure this could work. (i did read through some and found that "additional payments WILL be applied directly to the principle balance of the home")
Title: Re: Refi and Investing the difference/paying down rental mortgage
Post by: zephyr911 on May 09, 2016, 10:27:39 AM
What are your ultimate goals for your portfolio? If you're still growing it, and if the rental is profitable, let that tax-deductible 4.75% ride. I wouldn't pay down till much later.

Any spare cash I come across right now is going toward new investments... none of my debt represents a cash flow problem, none is at a rate higher than what I earn on new investments, and adding real estate assets means more tax deferrals via depreciation. I will gradually draw it down over time to reduce risk and simplify accounting, but right now while I'm growing, paying off debt is one of the least helpful allocations.
Title: Re: Refi and Investing the difference/paying down rental mortgage
Post by: rahby1us on May 09, 2016, 10:51:40 AM
Yeah, that was my original thought, invest at higher rates... i just know that paying down the 4.75% would be a "sure win" when using 3.375% money. Also, by taking on a higher refi than i need, but still retaining both mortgages, i would still be able to depreciate, and would only lose out on the incremental tax deductible mortgage interest difference from the 3.375% loan vs. the 4.75%. I think that's a negligible amount.

There are those people who would say don't borrow against your house to invest. Losing $ on investments is bad, losing someone else's $ could be worse, but losing your house is unthinkable. That being said, i don't think it'd come to that- we have ample $ in the bank to payoff the full loans completely if disaster struck... but would likely mean selling shares at lower prices.