Author Topic: Refinance to 30/15yr or ARM ?  (Read 1666 times)

SpicyMcHaggus

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Refinance to 30/15yr or ARM ?
« on: January 28, 2015, 09:31:38 AM »
I'm looking into refinancing my duplex that I purchased in 2013. I'm not happy with the FHA rate and want to eliminate the PMI.
Long story short, I tried to do a flip, didn't make out great, and wound up having less than I thought for a down payment on my owner-occ duplex. My finances have recovered, and after getting spending and investing under control, I want to fix my cashflow. I now have ~11% equity, on a zillow estimate of $131k, I owe $117k. By the end or mid 2015, I hope to have enough in savings and extra mortgage payments to reach 20% and qualify for a standard 30 year refi.

Home value: $131,000
Loan: $117,000
Rent total: $1425 (should raise long term tenant's soon)
Current payment: $1120 (includes principal, interest, insurance, prop taxes, and ~$110 PMI)
Water bill: $40/mo
= monthly cashflow: $265

*lets not get into the discussion about the 1% or 2% rule on this house. My city is notoriously hard to reach that rule due to high property taxes and low rents. I have a long term tenant in the bottom who has lived there ~20+ years. Upstairs is myself and my roommate, who has expressed interest in taking over the whole upper unit.

Here's some rates being offered by the local credit union.
I have debated keeping my payment roughly the same and going for 15 year, or lowering payment and increasing cashflow with a 30.

Term                   Rate           APR        Points   Pmt per $1000
30-Year                   3.375%   3.548%   1.50%   $4.42
30-Year                   3.625%   3.678%   0.00%   $4.56
30-Year - No Cost   3.875%   3.925%   0.00%   $4.70
20-Year                   3.375%   3.447%   0.00%   $5.74
20-Year - No Cost    3.625%   3.692%   0.00%   $5.86
15-Year                   2.875%   2.962%   0.00%   $6.85
15-Year - No Cost    3.125%   3.207%   0.00%    $6.97
10-Year                   2.750%   2.874%   0.00%   $9.54
10-Year - No Cost    3.000%   3.117%   0.00%   $9.66

Before I start making extra payments, am I better off investing the extra cash or putting it on the house and refinancing?
I could potentially double my cashflow (to $500 / month).

mathew1659

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Re: Refinance to 30/15yr or ARM ?
« Reply #1 on: January 28, 2015, 11:58:16 AM »
IMO cashflow is king, nothing helps you sleep better then stability. I would refinance.
you said owner-occupied, so your living in one of them? if thats the case then your occupying a unit worth $1425/month? if thats the case then I would say the property itself is meeting/exceeding the golden 2% rule.
Ultimately the question is what do you want as a cash on cash return. Most RE investors feel your COC return should be somewhere between 10% and 15% min. being a landlord. 20% is approx $26k in cash invested, so after anticipated vacancy (which sounds like it will be low for you, just remember its never 0% long term tenants die like the rest of us), cap ex, maintenance refinancing will get you to be true cash flow positive at around 10%ish if we are excluding the unit you live in. If I mistook it and your not living in either of them, regardless still refinance....

I have an SFR (single family rental property) owned outright that im debating on getting a mortgage on simply because rates have gone back down so much. If you look at history these sub 5% rates are not typical and may not be seen again for a very very long time.



SpicyMcHaggus

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Re: Refinance to 30/15yr or ARM ?
« Reply #2 on: January 28, 2015, 12:16:02 PM »
IMO cashflow is king, nothing helps you sleep better then stability. I would refinance.
you said owner-occupied, so your living in one of them? if thats the case then your occupying a unit worth $1425/month? if thats the case then I would say the property itself is meeting/exceeding the golden 2% rule.
Ultimately the question is what do you want as a cash on cash return. Most RE investors feel your COC return should be somewhere between 10% and 15% min. being a landlord. 20% is approx $26k in cash invested, so after anticipated vacancy (which sounds like it will be low for you, just remember its never 0% long term tenants die like the rest of us), cap ex, maintenance refinancing will get you to be true cash flow positive at around 10%ish if we are excluding the unit you live in. If I mistook it and your not living in either of them, regardless still refinance....

I have an SFR (single family rental property) owned outright that im debating on getting a mortgage on simply because rates have gone back down so much. If you look at history these sub 5% rates are not typical and may not be seen again for a very very long time.

no- the rental total is $1425 for the whole house. Rent is low and taxes are high here.
Downstairs is below market rate. $695.
Upstairs $730.
I currently occupy one of the upstairs rooms, and have had discussions with my roommate in the past about renting the whole floor to him. It would take approx $12,000 (today) or $11,000 delayed a few months to reach 20% equity and refi to a lower rate and would also eliminate PMI. On a 30 yr fixed, this would save ~$205 / month. $205 / mo is 22%. No brainer?  I'm just not sure if I'm doing the math right.

jtriplett

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Re: Refinance to 30/15yr or ARM ?
« Reply #3 on: January 31, 2015, 09:37:49 PM »
Fixed.  Absolutely get a fixed right now.  We may never see this low a rate again in our lives.  When QE stops in the next year or two loan prices are going to go up.