+11 votes
by (5.3k points)
I own a rental property that I bought for 267, 000 and am down to ~150, 000 on my mortgage with $993 monthly payment on a 3. 875% 20-year mortgage. I've never looked into refinancing until tonight and a quick and simple search on LendingTree says that I could refinance and end up with a 30-year fixed at $700/month with $1100 of lender and closing fees. Am I missing something here or is this clearly something I should be doing? Seems too good to be true.  
I own a rental property that I bought for 267,000 and am down to ~150,000 on my mortgage with $993 m

11 Answers

+4 votes
by (6.4k points)
It will extend the length of your payments and likely cost you more interest over the life of the loan because of that.  
by (5.3k points)
I get that, but am planning to sell the house probably within 5 years. so does it matter?  
by (6.4k points)
@isotope66 you would wind up having paid down less of it so you'll have less equity but honestly, no. Reminds me of a tax return. as it stands, you're putting your own money in and it'll give you a bigger return when you sell. Or keep the money in your pocket (by refinancing) and get less in the sale. So i guess it's up to you which you prefer. The only differing factor being interest rate but you can deny the refi if interest is higher than what you currently have. Then i guess add in the fees for the refi.  
by (5.3k points)
Good points! The interest rate I was quoted is exactly the same as my current rate. I always thought the fees for refi would be higher, but I suppose there could very well be additional costs I’m not seeing in the quote, and they may require an appraisal, which I’ve recently been curious to have done anyway.  
+3 votes
by (740 points)
Yes, somehow you missed it added 10+ years to how long you have to pay.  
0 votes
by (4k points)
You are not missing anything! That's a way better cash flow.  
+7 votes
by (1.9k points)
It would increase your net profit/ cash in hand to possibly purchase another. Don’t be in a hurry to pay off your rental mortgage too soon, you’d have less to write off.  
by (750 points)
It seems like this a bit of the tail wagging the dog. I’m all for tax planning, but at the end of the day a mortgage is still costing you a good amount of interest. And rental properties lend themselves as easy tools for write offs elsewhere that can provide actual benefit to you/the property.  
+5 votes
by (1.6k points)
Increased cash flow but extended loan and therefore interest. Both can be beneficial for buying and holding.  
0 votes
by (880 points)
Seems ok but you should still shop around. At worst it will reassure you on your choice.  
+7 votes
by (5.3k points)
No I definitely noticed that it would extend from my current 20-year to a 30-year. I have no intention of keeping the house to the end of the 20-year anyway, so this seems like a good thing to do. And by "closing fees", I would think that means "closing costs". no?  
by (740 points)
@isotope66 actually you are going from roughly 12 years left to pay to a brand new 30 year mortgage now owning over $250, 000 instead of 150k or so that you mentioned. We weren’t aware you were planning on selling as you didn’t originally post that. Even still, id probably stay in the current situation as after you factor all the fees associated with the refinance it’s probably not worth it for a measly $200 a month. And in 5 more years you’d have a lot more equity in the home as opposed to 5 years in on a new 30 year mortgage
+8 votes
by (1k points)
It will reset your mortgage to 30 years. How far are you into this 20 year mortgage?  
by (1k points)
@isotope66 16 years of payment and a ton more interest then if you refinance
+3 votes
by (1.6k points)
We looked at refinancing our rental, but found that the rate options were limited since it isn’t our primary residence.  
+5 votes
by (630 points)
Based on your numbers the refi cost would be recouped in 6months if those are the only fees. Your new rate would be 4% and the total interest will be $46k more than were you to stick with the current loan. A couple of things to ask yourself. Is paying more in interest and extending the loan out as well as spending good money on closing costs worth the $216 a month in potential cash flow. Personally if your long term / semi near term plans are to sell the property I would stay the course and not refi. Now if you are hurting because of the cost just go sell it now and alleviate yourself of the stress. If you need the money for other investments and not to go blow at the casino then go ahead and refi. I just refinanced our primary so I could pay off a rental. I would rather own the property outright than have a mortgage hanging over my head. Plus I can start putting the cash to work for me and not pay the bank.  
+9 votes
by (5.3k points)
Really appreciate all the comments. There’s definitely a lot to consider. Interestingly, the interest rate I was quoted is exactly the same, 3. 875%. For various reasons, my future is a bit up in the air right now in terms of where I’ll be in a couple years, and depending on that, we could want to sell the house within the next year to year and a half. Doing that would also mean we could qualify for a partial exclusion of gain (). Anyway, thanks for your thoughts everyone!  
https://www.irs.gov/publications/p523
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