Better to increase Cash Flow or Payoff?

Hey All,

I have a SFH as a rental and it has a 15 year loan on it. At the current rate it can be free and clear in 10 years. However, I could also probably refi it to a 30 year.

On the flip side, the house is +100 years old, and I could sell it and walk with equity as I have a $130K loan on a 215K house.

I’m still green in REI so I wanted to know what you thought.



What are your goals? Do you want the money now or do you want something that will keep producing money long term? Would the 60-65k you could walk with now be better for you than continuing to pay down the mortgage and then have more equity in a house several years from now that may be worth more then if the market improves? Is there going to be a lot of upcoming repairs and maintenance because the house is older?
Do you want more rentals? You’ve got significant equity here to leverage on some other properties.

What is the interest rate on the loan? Look at the “effective ROI” of a paydown - and what you would do with the cash if you didn’t pay it down.

If you pay down the loan, you get an immediate return in a reduced principal the next month. If you refinance and “cash out”… where do you put that money you take out?

Do what gives you a Higher ROI - both short term, and long term… because you ARE in this to make money… right?

Justin and JSP,

Thanks for the excellent questions. The goal is to make money.

At my current mortgage 5.49% 15 year loan. Since the rental market will allow my property to make 1,300-1,600 /month there’s not a lot of positive cash flow after insurance, taxes, and repairs.

If I extend the term of the loan to 30 years, then I can probably flow +$700 /month. If I don’t, I can probably pay off the loan in about 10 years.

I don’t think there’s going to be a tremendous amount of work needed over the years. I just put 25K into the property for renovations and repairs, what will be left over can be planned and budgeted for.

I could walk with the 60-65k equity and find a new property … maybe even go for a duplex…

I’m just not sure what the best decision is at the moment.

I do want more rentals…and I want to make sure that I’m not over leveraged in debt.

What are your thoughts?


Here’s my .02 cents. While cash is nice, cashflow=freedom. So, if you sell it and get a big paycheck that you blow before you even knew what happened (ask me how I know about that one :banghead ) then you’d be better off keeping it. You can also look at keeping it and getting a line of credit on the equity, and then using that to keep building your portfolio…just be sure you use the line of credit for what it is for, as that’s easy to mess with as well.

If it were me, depending on the current cashflow, I probably wouldn’t put it on a 30 year. That’s your call though!

It’s all going to come back to your goals, and how to structure it to where it gets you to your goals in the shortest amount of time!

Good luck, and CONGRATS on taking action!!

Ok, dumb idea here…

Why not refi to a 30 year loan, but pay it off at the 10 or 15 year rate if you can’t do any better than a 5.49% return somewhere else? While your at it, see if you can’t get an assumability clause slipped into the refinanced loan :slight_smile:

Having the flexibility to go either way there is nice. On the present terms you HAVE to pay it off in 15 years. This property is good for your portfolio, and that added 700+ a month “option” works great long term.

Increased options, flexibility, and exit strategies are ALWAYS good… its when you get stuck doing things one way and that one way fails that you get in trouble.