Author Topic: Refi- stupid question??  (Read 6631 times)

rahby1us

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Refi- stupid question??
« on: May 09, 2016, 09:59:05 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.

We also own a rental house which is financed at 4.75%. I was planning on refi'ing for the most $ possible (~$50k over owed balance), 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")

Dicey

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Re: Refi- stupid question??
« Reply #1 on: May 09, 2016, 10:20:42 AM »
Just commenting to say you should be able to do better than 4.75%.  We're closing this week on a refi of an existing rental for 4.25%, with no additional costs. Also closing on a new rental in a week or two, locked at the same rate. 75% LTV on each. Not offering advice except to suggest digging for better rates if you do.

Gin1984

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Re: Refi- stupid question??
« Reply #2 on: May 09, 2016, 10:25:40 AM »
Just commenting to say you should be able to do better than 4.75%.  We're closing this week on a refi of an existing rental for 4.25%, with no additional costs. Also closing on a new rental in a week or two, locked at the same rate. 75% LTV on each. Not offering advice except to suggest digging for better rates if you do.
What bank?

Drifterrider

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Re: Refi- stupid question??
« Reply #3 on: May 10, 2016, 05:03:52 AM »
As I read your post you are:  refinancing your residence from a 15 ARM to a 30 fixed in order to lower your monthly payments and you can "cash out" while doing so.  Is this correct?

If so, will the cash out be enough to pay off your rental OR to put you substantially in a position to get a much better rate for rental refi  by using the cash from your residence to pay down your debt?

How big is your emergency fund?

In general I dislike debt.  However, depending on the situation I might refinance my residence to pay off my rental thereby eliminating one debt.  Then I would use the rental income for other investments.

I am currently refinancing my residence (VA IRRL) which will free up $150 per month.  That is half the mortgage of another rental.  The payback time for my refi is about 3.5 years but I have no plans to leave this area within the next 5-10 years.


Dicey

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Re: Refi- stupid question??
« Reply #4 on: May 10, 2016, 07:26:15 AM »
Just commenting to say you should be able to do better than 4.75%.  We're closing this week on a refi of an existing rental for 4.25%, with no additional costs. Also closing on a new rental in a week or two, locked at the same rate. 75% LTV on each. Not offering advice except to suggest digging for better rates if you do.
What bank?
I'm in NorCal, it's Fremont Bank. PM me for a contact, if you'd like. No connection to them, just happy to help a fellow mustachian out.

zephyr911

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Re: Refi- stupid question??
« Reply #5 on: May 10, 2016, 07:33:44 AM »
Just commenting to say you should be able to do better than 4.75%.  We're closing this week on a refi of an existing rental for 4.25%, with no additional costs. Also closing on a new rental in a week or two, locked at the same rate. 75% LTV on each. Not offering advice except to suggest digging for better rates if you do.
What bank?
I'm in NorCal, it's Fremont Bank. PM me for a contact, if you'd like. No connection to them, just happy to help a fellow mustachian out.
Rates offered are highly dependent on many factors - credit profile, location and type of property, LTV, etc... so, expectation management is key.

Dicey

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Re: Refi- stupid question??
« Reply #6 on: May 10, 2016, 11:21:15 AM »
Just commenting to say you should be able to do better than 4.75%.  We're closing this week on a refi of an existing rental for 4.25%, with no additional costs. Also closing on a new rental in a week or two, locked at the same rate. 75% LTV on each. Not offering advice except to suggest digging for better rates if you do.
What bank?
I'm in NorCal, it's Fremont Bank. PM me for a contact, if you'd like. No connection to them, just happy to help a fellow mustachian out.
Rates offered are highly dependent on many factors - credit profile, location and type of property, LTV, etc... so, expectation management is key.
Quite true. As I mentioned on another thread, our credit scores are reasonably good, but not in the eights. Our income isn't in the eights either, (it's less). I'm FIRE, but not drawing down resources, because we can live comfortably on DH's income. So, no that rate is not available to just because we're so "wonderful". By advanced mustachian standards, we're high average, not unicorns by any means. The rates quoted are relatively low-hanging. Now, If you're up to your ass in SL's, CC's and have a checkered payment history, fuggedaboudit. If that's your situation and you're reading this, it's doubtful you're looking for rental property right now anyways. But you knew that.

Add: It doesn't say so explicitly, but it does not seem as if the OP is in a weak position either. Mine was just a suggestion that his expectation of mortgage interest was a little high. Kind of like telling your friend who's about to buy something at Store A that it's on sale this week at Store B, and always available for less at Store C. She can buy it wherever she wants, but at least she knows she could be getting it for less with a little effort.

zephyr911

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Re: Refi- stupid question??
« Reply #7 on: May 10, 2016, 01:14:42 PM »
Quite true. As I mentioned on another thread, our credit scores are reasonably good, but not in the eights. Our income isn't in the eights either, (it's less). I'm FIRE, but not drawing down resources, because we can live comfortably on DH's income. So, no that rate is not available to just because we're so "wonderful". By advanced mustachian standards, we're high average, not unicorns by any means. The rates quoted are relatively low-hanging. Now, If you're up to your ass in SL's, CC's and have a checkered payment history, fuggedaboudit. If that's your situation and you're reading this, it's doubtful you're looking for rental property right now anyways. But you knew that.

Add: It doesn't say so explicitly, but it does not seem as if the OP is in a weak position either. Mine was just a suggestion that his expectation of mortgage interest was a little high. Kind of like telling your friend who's about to buy something at Store A that it's on sale this week at Store B, and always available for less at Store C. She can buy it wherever she wants, but at least she knows she could be getting it for less with a little effort.
Definitely. I'm not that current on typical rates for individuals investing... my LLC was paying 5.875% for two years as a startup but is being offered 5% now. My personally owned rentals are all former residences in the 3-3.5% range.

rahby1us

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Re: Refi- stupid question??
« Reply #8 on: May 11, 2016, 08:48:41 AM »
If i remember correctly i took a higher rate in exchange for lower closing costs with a break even point of something like 8 or 10 years. There are so many things that can happen in a decade i decided to take the up front $ (which i can invest now). Also, the higher rate should get me some incremental tax savings although i like to look at that as a cherry on top.

To clarify i already own the rental. Was just debating on what to do with an extra 50K that i get from refinancing my live in home. Invest, or pay off my 4.75% interest on my rental.

Dicey

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Re: Refi- stupid question??
« Reply #9 on: May 11, 2016, 03:35:24 PM »
If i remember correctly i took a higher rate in exchange for lower closing costs with a break even point of something like 8 or 10 years. There are so many things that can happen in a decade i decided to take the up front $ (which i can invest now). Also, the higher rate should get me some incremental tax savings although i like to look at that as a cherry on top.

To clarify i already own the rental. Was just debating on what to do with an extra 50K that i get from refinancing my live in home. Invest, or pay off my 4.75% interest on my rental.

Yeah, even Fremont Bank has a slightly lower rates for Non-Owner Occupancy loans (4.125% ) if you're willing to pay the fees OOP. We did the math and decided it wasn't worth it.

And I understood that you own the rental, I was just pointing out that there were better rates to be had at present. The re-fi we just did was on a rental I've owned since 2003, and we're in escrow on a new rental, so we have current experience on both sides.

Would I re-fi to save half a point with no fees? Hell yes.