There is a long backstory to this, but the summary is: my wife and her sister co-own a condo they bought before we got married. It has been underwater since then, so we rent it out at negative cash flow. The mortgage rate is floating and a bit high, so we are considering refinancing, but we'd have to bring a large amount of cash to closing to obtain a decent LTV. My wife and I are pursuing FI, so being cash-flow positive is appealing to me, at the cost of taking $75k out of our taxable (not insignificant) to hit that LTV.
So, given the following options, what would you do? I think I'm leaning towards the 30 yr refi - tell me why I'm wrong.
Here's the relevant number info and options (all numbers are joint total between my wife and her sister):
CURRENT:
Condo value: ~$285K
Remaining loan amount: $285K, rate ~5% (floating), 15 years left on mortgage
Gross rent income: $1725/mo
Net rental income: Taking into account HOA fees, etc., we are cash-flow negative ~$1k a month (although the rent covers all fees, mtg interest, and small part of the principal)
Options:
1) 30 yr refi
- Mortgage 213k @ 4.5%
- Need to bring $75k to closing
- Would be net positive about $100/month until mortgage is paid off, then make about $1200/month today's dollars
2) 15 yr refi
- Mortgage $213k
- Need to bring $75k to closing
- Would be net negative about $360/month until mortgage is paid off, then make about $1200/month today's dollars
3) Do nothing, ride it out for 5 years and reassess whether to just sell at hopefully breakeven after closing costs
