Since I am having to liquidate my retirement portfolio to pay for some tax debt, I want to have something financial that I can focus on and consider a project. So I am spending the next 3 years really focused on maximizing monthly cash flow and paying off debt. If I can pay off just the debts that I have listed in my spreadsheet, I can cut about 30% out of my monthly budget and free up cash for other purposes. Besides, paying off debt is a great way to improve my net worth without having to pay taxes on the gains.
Refinancing the Rental Property
I met with a banker yesterday to look at doing a refinance on 4 of my rental houses. I have anywhere from 20-29% equity in the properties with 20 years 10 months to 22 years 11 months left on a 30 year fixed rate mortgage. The interest rates range from 6.375% to 7%.
Even though I am unable to get the best deal due to my credit score (I have a lot of debt relative to the credit lines), it does seem worth it and is consistent with my goal of decreasing expenses and improving cash flow in order to pay off as much debt as possible in the next 36 months. This includes rolling some closing costs into the mortgage. Of course, I will have to see the final deal but the initial numbers looked reasonable.
Assuming everything continues as expected, I would only be saving from $60-70 per month, but multiplied across several houses, the savings will add up and allow me to use the money for paying off higher interest rate debt. I will also be able to eliminate PMI on the one property on which I only put 10% down.
Decreasing the Term
The best part of the deal, though, is that I will not only save a bit of money each month, but I will be saving anywhere from 10 months to 2 years and 11 months on the mortgages since they will all be 20 year loans with a fixed interest rate. This will add up to some additional savings on the back end.
When I add it all up, it looks like I will end up saving $132,000 over the next 20 years which works out to be a decent return on about $10,000 in total closing costs. I will report actual numbers after the closing.
This is just one of the steps that will help me pay off a lot of debt over the next 36 months and free up some cash flow that can be put to better use besides lining the pockets of the bankers.
Here are the carnivals that had articles from my blogs in them this past week: