A few weeks ago, we were pondering if we should refinance our rental home. Well, it’s done! After weighting all the pros and cons, we decided to refinance the place.
Here is the comparison of the two loans
| old | new | |
| amount owed | $87,000 | $90,000 |
| term | 5.25% with 6.5 years left | 3.875% with 10 years left |
| payment | about $1,350 | about $900 |
Previously, I was thinking about refinancing with a 15 years loan, but Money Reasons suggested a 10 years loan instead. This made it a winner because the lower rate made it worth it. Unfortunately, we weren’t able to get no fee refinancing. That would have made it a great deal!
At first glance, the extra $3,000 owed looks like a large fee to pay for refinancing, but it’s actually not that bad. We got $1,000 cash back and we did not have to pay one month of mortgage. Let’s use the old payment of $1,350 in this calculation. So we actually got $2,350 back out of that $3,000. With this calculation, the refinance cost $650. That isn’t a big price to pay to get lower payment.
We’ll continue paying $1,350/month while I am still working full time. Once I quit my day job, we’ll just pay $900/month. This will help our monthly cash flow tremendously. An extra $450/month is just about enough to give us positive cash flow with one paycheck (Mrs. RB40′s.) See my June cash flow post for reference.
All in all, the refinance was a good experience. We had to rush to the title company’s office to sign, but it was worth it. Now we’ll have more flexibility going forward. Did you take advantage of the recent low rates to refinance?
Today’s rate is even lower than in 2011. You should check with Quicken Loans to see if you can lower your payment.
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Sounds like you’re right on track! Congrats on paying extra on the mortgage as well. I bet you can have it fully paid off by the time you quit your job.
I don’t think it’ll be paid off that quickly. As long as we get positive cash flow from the property, I won’t worry too much about paying it off early. We’ll put in what we can…
Sounds like refinancing was the way to go on this one. Like you said, the $3,000 extra owed seems like a lot, but with $2,350 coming back it seems like you made the right choice. I’m sure the lower payments will be a nice bonus as well giving you more flexibility down the line with your budgeting. Thanks for sharing and best of luck with the future finances!
That is a great deal- you totally did the right thing.
We have not refinanced because our mortgage (15 year) was already at 4 3/4. It should be done in 6.5 years, but I am hoping to pay it off sooner.
Don’t you love when these things are over and done?
You mean the paper work? This one was pretty quick. I think the bank decided to push it through because it’s an investment property.
That is awesome RB40! You locked in an excellent rate and the deal seems pretty good.
I know ING was running a few no-fee promotions, but I wouldn’t sweat it, this does look good.
I think the ING no-fee deal is only for owner occupied homes. I looked at ING before and couldn’t refinance because they don’t deal with rental properties. As far as I know…
Wow, that’s a good interest rate… The cash back on the fee etc seems really helpful. Did you have to do anything ti make sure you got that, or is it just available to everyone?
We didn’t do anything extra to get the money back. If you have equity, you can specify additional cash back, but we just wanted to refinance the same amount. They over calculated a bit so we get a $1,000 back. I’m not complaining.
It sounds like you made a great decision for your specific situation. Good job!
That’s is fantastic. The payment difference is amazing. Great idea to keep paying what you’re used to, until you have to cut back.
I like how you are foregoing current income for future dividends (paying off mortgage). Keep it up!
It’s good to know that you have room to adjust expenses as needed. The extra flexibility is always welcome.
Looks like a great decision, most excellent interest rate!
congratulations, that was a smart move
That is a great interest rate on an investment property. Sounds like you made a good decision. Congratulations.
Thanks! I think I got the rate at or near the lowest this year, pretty lucky.
Yeehaw for more cash flow! congrats and it looks like you got a great rate
Thanks! I love cash flow!
This is a good deal, where did you get such a good rate for a rental/’investment’ property. When I was looking at refinancing ours, the rate for the ‘investment’ property was about 6.5%, this was when rates were about 4.5% for owner occupied.
We passed, but if I could get what you got, I would do it in a heartbeat.
I refinanced with the credit union I had the original loan with. I think a 10 years loan had really good rate at the end of May. Locally, the interest rate for investment property is 0.5% higher than owner occupied. 2% higher is pretty crazy, it’s not worth refinancing with that.
The extra cash flow is a good return on those fees paid. Well done!
We refinanced a year before leaving our last house. The rates were extremely low.
I would love to refinance but I cannot find a bank or credit union that will not kill us with fees. I am at 4.75% for 30 years, I wish I could get down to 4% for 30 years but it does not look like it will happen. Maybe something will drop in my lap in the next 6 months.
That was why we waited so long to refinance. The rate finally made it worth while so we pulled the trigger.
Wow, that’s fantastic!
At a net cost of $650 this was a great move, and with the extra cashflow you will break even in 2 months!
We did a no cost to a 20 year at 4.75 almost a year ago. Currently we have a little over 10 years left on the loan because of pre-payment.
Hm… it looks like rates are even lower now for those shorter term mortgages. Maybe I’ll call to ask if we’re eligible for another no-cost refi.
Wow, you paid down very quickly. I think the rate came up a bit over the last month though. Good luck!
My brother also recently did a no fee refinance in CA, but the rate was not that great.
Nicely done. I could certainly use a positive cash-flow boost like this. Booyah.
Thanks! positive cash flow is awesome.
Good stuff man. I actually read this post 15 minutes before I decided to pay of a good slug of my rental property mortgage! It helped push me over the edge to act!
All right! Great going. Sometime we all need just a little push to make a move.
Are you going to find another property next? In Hawaii?
I want to add that I think that refinancing over the long term is a good idea for rental properties- that really does mean more monthly cash flow for you!
AND its tax deductible (at least here in Canada it is).
My dad with his multiple rental properties refinances and refinances in order to get the tax deductions to minimize his reported income.
I think all the real estate moguls refinance to get the cash out to purchase new properties. That way they don’t have to pay capitol gain tax and they also get tax deduction. I don’t know if we will refinance all the time though. We like stability….
Nice job with the refi, amazing rate and savings!
Thanks! Rate was too good to pass up so we pulled the trigger.
Did you do the calculations on break even? Dinkytown has a great calculator? (terrible name for a site but some of the most amazing calcs out there)
Can I ask exactly which credit union did the refinancing? Thanks so much
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