Should We Take Cash Out from Refinancing?
I was surprised to learn that our house appraised for $18k higher than we purchased it for in Dec 2008 and our refinance lender will let us borrow an additional $20,000 over our current mortgage balance. I thought lending practices were getting tougher?
Now we have to figure out how much we want to borrow. I prefer not to mix personal and investment transactions because its easier to help me establish an accurate rate of return for investments like our rental properties. However, with interest rates so low it pretty compelling to start blurring the lines a bit to help our bottom line - take a look at a current snapshot of our debt (House #1 & #2 are rentals):
|1||5.6% 30yr fixed||House #1||$ 102,360||Aug-31|
|2||HELOC @ 3.25% var.||House #1||$ 25,500||Aug-23|
|3||IELOC @ 4.25% var.||House #2||$ 9,479||Jul-29|
|4||4.875% 30 yr fixed||House #4||$ 235,674||Jan-39|
Our Recent Focus on Debt Reduction
With our growing family and change to a single income status over the past 2 years we have been focusing on paying down our debt in order to boost our monthly cash flow as living on our single income cuts things too close to comfort for us. We have been able to eliminate the primary mortgage on House #2 by paying it down and transferring the remaining amount of loan to the HELOC and IELOC. Now we are starting to focus our monthly rental runoff to paying down the mortgage on House #1.
Does It Make Sense to Max Out Our Refinanced Mortgage?
If we take the maximum loan amount we'd be able to borrow an additional $20,000 that we could use to paydown some of our higher rate debt. Currently loan #1 is $102k at 5.60%. The new rate on our refinanced mortgage will be 4.375%. We'd cut 1.225% on the interest rate for $20,000. On the downside we wouldn't see but a $2 benefit in a monthly payment reduction on our primary mortgage instead of ~$70/mo drop in our monthly payment if we didn't pull the addtional $20k out.
Bottom line for us though would be to drop the interest rate on the $20k and get the rental mortgage paid off sooner. We really won't see much monthly benefit now from a ~$70/mo payment drop. Once the mortgage is paid off we should see a ~$750/mo improvement to our cash flow.
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