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The interest rate continues to plunge, creating refinancing opportunities and my conundrum is – should we refinance the rental home?
Here are the details of the current loan:
Amount owed – 87,000
Loan terms – 5.25% 15-year fixed rate loan. We have less than 7 years left on this mortgage.
Payment – monthly payment is around $1,350. About $1,000 of that payment goes to the principal every month.
Have you refinanced yet?
I called up the bank and they quoted me a 15-year loan with 4.625% interest rate. This is a rental and a non owner occupied home will get a .5% worse rate than a regular owner occupied home. This rate frankly sucks badly so I will check with another bank later this week.
The bank fee will be about $3,000, so here is the new loan if I refinance with our current bank.
Amount owed – 90,000
Loan terms – 4.625% 15 years fixed rate loan.
Payment – $700
Pro – Extra $650 in cash flow. This will be a huge step toward getting a positive cash flow with one income.
Con – If I just stay put with the current loan, it will be paid off in 6.5 years and then it’s all gravy after that. If I refinance, the loan will reset and it will take 15 years to pay off…. Do I really want to do that?
retirebyforty’s rule of thumb – If you make the same payment regardless of the new term, will it be faster to pay off? So if I refinance and continue to pay $1350/m, the new loan will be paid off in about 6.5 years… They come out to be very similar. The main advantage of refinancing is that it will give us flexibility. For example, if we get a prolonged vacancy, we can stop paying extra until we get a new tenant. I like the flexibility, but then again it’s a lot of trouble to go through all that paper work and appraisal for minimal gain.
Update #1: The current rent is $1,450 and the cash flow is about -$150 at the moment.
Update #2: I got a quote from another bank and the rate is 4.75%. bahhh!!
What do you think? Should we refinance or stay put with the current mortgage? I think we should refinance if I can get 4.25% interest rate.
We finished refinancing the rental home! Read all about it.
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