Would you refi to save $4,000?

[riverwed070707]

Evaluating all my debts with rates being so low. I have 2 rental properties - first is valued at $230k with an $87k mortgage at 4.5% and the other is valued at $160k with an $82k mortgage balance at 3.675% both on 15 year loans with 12 years to go. I had been waiting for rates to go low enough to do a cash out refi on my 4 plex so I could buy my next rental. After some reevaluation of my plan, I don't think I want another rental after all and instead I want to snowball these mortgages in order to increase my cash flow around the time I plan to "retire". Ran some numbers and if I were to snowball the current mortgages with an additional $500/mo I could have them both paid off in 8.4 years with interest totaling $30k over that time. Typically interest rates for income properties is .5-1% higher than primary mortgages. If I could lock in at 3.5% (or lower!), I could do a cash out refi on the 4 plex, pay off the mortgage on the SFH effectively rolling them into one. My required payment would decrease $300 (giving flexibility during times of vacancy, repairs, etc) and if I kept my payment the same as my current snowball plan I could have the loan paid off in 8.1 years and the total interest paid would be $24,000. Cost of a refi at my bank is about $1,200. It's not a lot of savings in pay off time or overall dollars but for some reason it's highly appealing to me to have them rolled into one mortgage and even though the rate isn't much lower on the second property, at least I would only be paying to refi the one rather than both. Thoughts?

[bjl584]

Rule of thumb in real estate is to stay leveraged and use leverage to keep buying property while your tenants do the heavy lifting of paying off the debts.
But, if your strategy has changed and it would give you peace of mind to pay them off, then I don't see a problem with your plan.

[disneysteve]

Is there any possible downside to doing it? It will lower your monthly minimum payment which, as you said, increases your flexibility. It saves you on interest over the life of the loan. And it sounds like it would give you some psychological advantage. Sounds like a no-brainer to me as long as you don't mind going through the process.

[Jluke]

Are you skewing your numbers by looking at paying extra on your current loans versus the refinance?

i went through a similar exercise and am in the process of refi.

mortgage was 940 with 99k Interest remaining and 24 years left

if I paid extra on the existing mortgage then I would pay less interest and time.

however if I chose a 20year I would pay $1000 per month.

the extra I would need to pay on the existing loan was more than the $60 dollar increase.

so comparing no extra in the existing to no extra on the refinance I am paying 33k less in interest.

maybe that would be another way to look at it. If I am making sense.

[riverwed070707]

Are you skewing your numbers by looking at paying extra on your current loans versus the refinance?

i went through a similar exercise and am in the process of refi.

mortgage was 940 with 99k Interest remaining and 24 years left

if I paid extra on the existing mortgage then I would pay less interest and time.

however if I chose a 20year I would pay $1000 per month.

the extra I would need to pay on the existing loan was more than the $60 dollar increase.

so comparing no extra in the existing to no extra on the refinance I am paying 33k less in interest.

maybe that would be another way to look at it. If I am making sense.

Think I'm following you. Short answer is the interest savings would be substantially more if I just paid the minimum now vs refi. Where I got the $4k savings was including accelerated payments on both the existing and the calculation for a refi scenario. So either way I would pay $2000/mo with minimum payment on combined mortgages currently $1,500 and minimum payment after refi $1,200