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Rental Home Refinance is Done!


refinanced rental home

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 Zillow Mortgages to see if you can lower your payment.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 39 comments… add one }
  • LifeAndMyFinances July 18, 2011, 3:52 am

    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.

    • retirebyforty July 18, 2011, 9:49 am

      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…

  • OneCentsibleLady July 18, 2011, 6:49 am

    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!

  • Everyday Tips July 18, 2011, 6:50 am

    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?

    • retirebyforty July 18, 2011, 9:51 am

      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.

  • MoneyCone July 18, 2011, 7:30 am

    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.

    • retirebyforty July 18, 2011, 9:52 am

      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…

  • Kellen July 18, 2011, 8:06 am

    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?

    • retirebyforty July 18, 2011, 9:54 am

      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. 🙂

  • Denise @ The Single Saver July 18, 2011, 1:45 pm

    It sounds like you made a great decision for your specific situation. Good job!

  • Niki July 18, 2011, 2:25 pm

    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.

  • krantcents July 18, 2011, 3:09 pm

    I like how you are foregoing current income for future dividends (paying off mortgage). Keep it up!

  • Financial Success for Young Adults July 18, 2011, 3:31 pm

    It’s good to know that you have room to adjust expenses as needed. The extra flexibility is always welcome.

  • Money Reasons July 18, 2011, 4:20 pm

    Looks like a great decision, most excellent interest rate!

  • SB(One Cent At A Time) July 18, 2011, 5:51 pm

    congratulations, that was a smart move

  • cashflowmantra July 18, 2011, 8:21 pm

    That is a great interest rate on an investment property. Sounds like you made a good decision. Congratulations.

    • retirebyforty July 18, 2011, 10:59 pm

      Thanks! I think I got the rate at or near the lowest this year, pretty lucky.

  • youngandthrifty July 18, 2011, 8:29 pm

    Yeehaw for more cash flow! congrats and it looks like you got a great rate 🙂

  • Ed July 18, 2011, 10:35 pm

    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.

    • retirebyforty July 18, 2011, 11:01 pm

      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.

  • 101 Centavos July 19, 2011, 4:30 am

    The extra cash flow is a good return on those fees paid. Well done!

  • Sustainable PF July 19, 2011, 11:01 am

    We refinanced a year before leaving our last house. The rates were extremely low.

  • Ginger July 19, 2011, 11:14 am

    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.

    • retirebyforty July 19, 2011, 10:35 pm

      That was why we waited so long to refinance. The rate finally made it worth while so we pulled the trigger.

  • Nate July 19, 2011, 12:25 pm

    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!

  • Nicole July 19, 2011, 1:03 pm

    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.

    • retirebyforty July 19, 2011, 10:38 pm

      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.

  • Hunter July 19, 2011, 1:35 pm

    Nicely done. I could certainly use a positive cash-flow boost like this. Booyah.

  • Financial Samurai July 19, 2011, 10:16 pm

    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!

    • retirebyforty July 19, 2011, 10:41 pm

      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? 🙂

  • youngandthrifty July 19, 2011, 11:01 pm

    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.

    • retirebyforty July 20, 2011, 2:55 pm

      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….

  • Buck Inspire July 20, 2011, 7:04 am

    Nice job with the refi, amazing rate and savings!

    • retirebyforty July 20, 2011, 8:19 pm

      Thanks! Rate was too good to pass up so we pulled the trigger.

  • Evan July 22, 2011, 9:34 pm

    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)

  • Retire early October 22, 2011, 8:06 am

    Can I ask exactly which credit union did the refinancing? Thanks so much

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