Should I Refinance?

Financing, Hard Money Lenders, Private Money
1

I have a 4 unit apartment building with a FMV of $250K-$265K . I’ve just started to consider refinancing.

Current Financing:

$250K @ 5.375% FHA Loan-28yrs remaining

P+I = $1433/mo
PMI= $103/mo

Total interest left to pay: $233,000

A couple of scenarios:

Pay down balance to a 70% LTV , $75K out of pocket

$175K @ 3.65% Investor loan- 15 year term

P+I= $1264/mo
PMI= 0

Total interest of the life of the loan: $52,516

This would lower my payment by $272/mo and save over $180K in interest payments

OR,

I could do the same as above with a 30 year term.

$175K @ 4.25% Investor loan- 30 year term

P+I= $860/mo

This would lower my payment by $676/mo and I would own in 30 years instead of 15 but save $98K in interest payments.

Any advice would be appreciated. Thanks and take care.

JP

2

Hi,

Your $75k should generate a return every year and as a real estate investor if I am going to tie up $75k it needs to make 10% a year or more in returns!

I generally do not advocate changing my mortgages on properties where the tenants are paying my mortgage!

Your second scenerio does not work at all as it does not provide a 10% or more cash on cash return on your money!

Your first scenerio provides for a return of a little over 20% as a cash on cash return on your cash dollars! (Interest savings and new additional cash flow combined)

The only reason I would use my cash to do this is provided you do not need this cash for your investing, and you still have adiquate reserves for your family security!

                                GR
3

Thank you GR! I was strongly leaning toward the 15 year mortgage. I just needed to know if there was an obvious reason not to proceed with it. You make very good points. I do have additional money for investing and reserves set aside for the family. I am going to look into it further. Thanks and take care.

JP