Hoping the Rental House Refinancing Works Out
A little while ago I mentioned that I was looking into refinancing some of my rental property. I figured that interest rates had gotten so low it was worth looking into and seeing what might happen. I think there is only one way for rates to go and that is up. Well, life got in the way and I had to get some other things done first as I am sure that most of you know. But now, I have been able to begin looking into the refi again.
It turns out that the mortgage guy at the bank left so I am with a new guy. I have only spoken with him on the phone, but I think I like him better. He is fairly responsive, and I think we can get this done.
I made myself a spreadsheet at the end of October with the data from all 6 of my rental houses. One is the place we used to live in before moving 12 years ago. We have a second mortgage on it so there is not a lot of equity. But the other 5 are the ones that I will be able to refinance. I figured that while I was decreasing the interest rate, I would also look into decreasing the term.
Currently, my rates run from 6.38% to 7% with remaining terms of 21 to 23 years. I had him look at 20 year and 15 year numbers, and I am liking what I see.
For the 20 year term, the interest rate would be 4.25% and I would have to bring just over $13,000 to closing. The payments would decline by about $948 per month. It would take about 14 months to break even and get my cash back.
For the 15 year term, the interest rate would be 3.125% and I would have to bring $10,500 to closing with payments being reduced by $659 per month. It would take me 16 months to get the cash expense back. But I would save 5 full years of payments at the back end compared to the 20 year mortgage. And I will definitely save a bundle compared to my current situation.
The savings could be used to pay some of my other debts which I am working aggressively to get under control. Right now, that seems like the best use of cash right now. I would prefer not to bring that much cash to closing, but consider the return on investment, and it is a great deal. If over the first year, I save $7908 in cash on my $10,500 investment now, my cash on cash return is just over 75%. Who wouldn’t take that kind of return on investment? So it makes abundant sense to get this thing done.
Which is why I hoping the refinancing on the rental houses all works out.