Author Topic: Should I refi our rental?  (Read 876 times)

Mr. Green

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Should I refi our rental?
« on: August 20, 2019, 12:30:44 PM »
My wife and I rent out the house we used to live in. The numbers don't make sense for a pro landlord but we may one day move back there so for now we're hanging on to it. We're currently almost halfway through a 15 year mortgage @ 2.875%. The house will be paid off in 2028. We have a company managing the rental since we're now several states away and we are cash flow negative $100 a month without any major repairs. I don't mind this because we're paying down the loan balance so fast.

The recent drop in rates has me wondering if we should refi back to a 30 year mortgage. Our current loan balance at 3.75% would cut the monthly payment by more than half. We would go from cash flow negative to cash flow positive $600 a month. Since we're no longer working (FIREd) this would be less money we'd have to pull out of our investments each year. We'd end up paying a lot more interest to the bank in the long term but the math says that for as long as it's rented we should easily see a better return on the money we're able to leave in the stock market.

This is our only rental and since we're already FIREd I don't anticipate picking up any more. Are there other considerations I should be thinking about? Admittedly, my landlord game is not strong so I'm not sure if this is a no-brainer or if there are other financial considerations I'm missing.
« Last Edit: August 20, 2019, 12:47:05 PM by Mr. Green »

bacchi

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Re: Should I refi our rental?
« Reply #1 on: August 20, 2019, 12:49:15 PM »
Can you get that rate on a landlord's mortgage or only an owner-occupied one?

Mr. Green

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Re: Should I refi our rental?
« Reply #2 on: August 21, 2019, 12:14:59 PM »
Can you get that rate on a landlord's mortgage or only an owner-occupied one?
Well, apparently not. 5.125% is what I was just told for "investment properties." Hilariously enough, I was told the rate was also higher because the loan amount was small. So the rate is higher because it's riskier, being that I don't live there, and even higher yet because it's less risky than if they were giving me more money. So much for that idea!

Dicey

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Re: Should I refi our rental?
« Reply #3 on: September 03, 2019, 08:57:44 PM »
Can you get that rate on a landlord's mortgage or only an owner-occupied one?
Well, apparently not. 5.125% is what I was just told for "investment properties." Hilariously enough, I was told the rate was also higher because the loan amount was small. So the rate is higher because it's riskier, being that I don't live there, and even higher yet because it's less risky than if they were giving me more money. So much for that idea!
Don't give up so fast. Try another lender. We use a local bank and they only charge 50 basis points premium for non-owner occ mortgages.

sailinlight

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Re: Should I refi our rental?
« Reply #4 on: September 03, 2019, 09:12:48 PM »
Also you could try a cash-out refi for the true value of the property. It might be a lower rate and you could get cash in your pocket.

clarkfan1979

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Re: Should I refi our rental?
« Reply #5 on: September 04, 2019, 03:12:26 PM »
Can you get that rate on a landlord's mortgage or only an owner-occupied one?
Well, apparently not. 5.125% is what I was just told for "investment properties." Hilariously enough, I was told the rate was also higher because the loan amount was small. So the rate is higher because it's riskier, being that I don't live there, and even higher yet because it's less risky than if they were giving me more money. So much for that idea!

Based on my knowledge, you will pay a higher rate for 3 different reasons.

1) It's not owner-occupied
2) It's a re-fi, not a purchase
3) It's a "cash-out" re-fi

I did a cash-out re-fi on a rental property in September 2017 (closed in November 2017) and got 4.625%. Now, I think I could get 4.5% on the same property.

Another Reader

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Re: Should I refi our rental?
« Reply #6 on: September 04, 2019, 04:23:58 PM »
Can you get that rate on a landlord's mortgage or only an owner-occupied one?
Well, apparently not. 5.125% is what I was just told for "investment properties." Hilariously enough, I was told the rate was also higher because the loan amount was small. So the rate is higher because it's riskier, being that I don't live there, and even higher yet because it's less risky than if they were giving me more money. So much for that idea!
Don't give up so fast. Try another lender. We use a local bank and they only charge 50 basis points premium for non-owner occ mortgages.

For refis as well as purchase money?  I might need to talk to these folks...

Dicey

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Re: Should I refi our rental?
« Reply #7 on: September 04, 2019, 04:55:45 PM »
I didn't ask about re-fi, but it wouldn't surprise me. I did call them about pulling a first on our mortgage-free primary. They said it would be considered a cash-out re-fi and they charge an eighth more. I doubt we'll do it, but B42 would be happy, lol.

Fun fact: our flip house buyers were going with BofA, but they were not getting good service. We suggested Fremont Bank, they switched, and it looks like we will still close on time.

Another Reader

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Re: Should I refi our rental?
« Reply #8 on: September 04, 2019, 05:17:05 PM »
I didn't ask about re-fi, but it wouldn't surprise me. I did call them about pulling a first on our mortgage-free primary. They said it would be considered a cash-out re-fi and they charge an eighth more. I doubt we'll do it, but B42 would be happy, lol.

Fun fact: our flip house buyers were going with BofA, but they were not getting good service. We suggested Fremont Bank, they switched, and it looks like we will still close on time.

I forgot that I talked to your FB contact.  Still over the conforming loan limit, so probably still a no-go. The rates for conforming were good,at least they were a year ago, if anyone is interested.

Telecaster

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Re: Should I refi our rental?
« Reply #9 on: September 04, 2019, 07:56:17 PM »
The recent drop in rates has me wondering if we should refi back to a 30 year mortgage. Our current loan balance at 3.75% would cut the monthly payment by more than half. We would go from cash flow negative to cash flow positive $600 a month. Since we're no longer working (FIREd) this would be less money we'd have to pull out of our investments each year. We'd end up paying a lot more interest to the bank in the long term but the math says that for as long as it's rented we should easily see a better return on the money we're able to leave in the stock market.

I'm a landlord, but not a pro landlord.  However, but from my view I always want to be cash flow positive with a rental.  Even if you are paying more in interest, you are putting more money in your pocket, so who cares about the interest? 

SwordGuy

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Re: Should I refi our rental?
« Reply #10 on: September 04, 2019, 08:14:54 PM »
The recent drop in rates has me wondering if we should refi back to a 30 year mortgage. Our current loan balance at 3.75% would cut the monthly payment by more than half. We would go from cash flow negative to cash flow positive $600 a month. Since we're no longer working (FIREd) this would be less money we'd have to pull out of our investments each year. We'd end up paying a lot more interest to the bank in the long term but the math says that for as long as it's rented we should easily see a better return on the money we're able to leave in the stock market.

I'm a landlord, but not a pro landlord.  However, but from my view I always want to be cash flow positive with a rental.  Even if you are paying more in interest, you are putting more money in your pocket, so who cares about the interest?

Damn skippy!   Get that property to cash flow positive!    You can always pay extra if you want to reduce the interest expense.   But if things are tough you don't have to.