Author Topic: Should I Refi My Primary Residence?  (Read 914 times)

TrumpetS3

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Should I Refi My Primary Residence?
« on: November 15, 2016, 07:18:53 PM »
Hi folks,

So I'm coming up against in my area a lot of "deals" that require a cash buyer. I am more than qualified for a conventional finance and am pre approved & qualified already for the necessary funds but that doesn't help when it's a cash seller.
My criteria is a 2 unit MFR, $100k budget for buy and hold passive income in the Sarasota, Bradenton, Tampa area. I have already $25 in cash so enough for a 25% dpayment. I need a deal so it will need rehab, I'm estimating purchasing at $60k-$70k and the remainder to be rehab and closing costs.

I currently have a primary residence I purchased in early 2012 that has around $100k equity built up. I have a 30 year mortgage with an exceptional rate of 2.75% interest but only until August 2017 when it will be increasing with market rates at a max of 1% per year. I'd considered refinancing (but not for equity release) last year anyway since I knew my rate would be increasing but never got around to it, that was also way before I'd discovered the concept of financial independence and RE investing.

So with all this in mind, should, or could I... refi my primary residence mortgage and use this equity as cash towards a rental investment Multifamily??

The pros of this I see are:

- I'd keep just one mortgage as oppose to two if I found a deal with conventional financing.
- I'd benefit from primary residence financing, such as reduced interest rates.
- I can use a large portion of the rental income to pay down my residency mortgage.
- I'd have no mortgage on my first RE investment!

Cons I see are:

- I've been paying down this mortgage for the last 4 years and with the amortization if I refi I'm back to getting hit with a high percentage of interest in early payments again.
- The costs of an appraisal and lender fees.
- A general feeling of taking on more debt and feeling uncomfortable with meddling with my primary residences finances.

Would love to hear your thoughts?!

Thanks in advance,
TS3

Hotstreak

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Re: Should I Refi My Primary Residence?
« Reply #1 on: November 15, 2016, 10:34:33 PM »
Sure, you can do that.  Plenty of people do, it's an easy way to get access to cheap funds.


Quote

- I've been paying down this mortgage for the last 4 years and with the amortization if I refi I'm back to getting hit with a high percentage of interest in early payments again.


This is a bit of a scarecrow.  The amount of interest you pay is calculated on a daily basis based on 1) your rate and 2) your current balance.  There's no special formula that frontloads interest, it's a basic function of how loans work.  If you want to maintain your current principal/interest ratio, ask the bank to write your loan on the existing amortization (24 years remaining, or whatever).  Your payment will be higher of course.
« Last Edit: November 15, 2016, 10:36:56 PM by Hotstreak »

escolegrove

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Re: Should I Refi My Primary Residence?
« Reply #2 on: November 16, 2016, 12:54:55 PM »
We did a cash out refinance and it was one of the best thing we did for our real estate portfolio. One of the lessons I have had to learn, is it costs money to make money. So I always ask myself is the cost of X (your interest costs) worth the cost of Y (your new cash flow  and equity from your property). If the answer is yes, I proceed, if its no I wait till I find a deal that its a yes.