Should I Refinance My Rental Property?
Posted June 4, 2013
WRAL Reader Question
I have an adjustable rate mortgage that I owe $80k on. I am debt free except for this mortgage. My monthly payment is $588.70 and I can actually afford the payment, but only $117.00 is going toward the principle with the rest toward interest.
I recently married, but owned this home before marriage and I reside in NC. Also, the house is rented out, so it is not my main home, but the only residence I own.
Should I refinance by myself on my income?
Should I refinance with my husband's income?
Should I just keep this mortgage and make extra payments toward the principle each month? (I can afford $500 extra per month).
Thank You Steve.....
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Thank you for asking your question.
The one critical point you didn't share was what the details about the interest rate and balance.
There are a number of different points to consider here.
For example, if this house is just in your name alone, leaving it that way might help to minimize your joint liability in case of some suit or action directed towards the landlord? It's a consideration but one you'd have to discuss with an asset protection attorney licensed in North Carolina if you decide to leave it in your name alone to manage risk.
It would be helpful to know if this house has been a good investment and is projected to generate a decent return. Just because people hold on to a property does not mean it is either a smart thing to do or will generate a good return. People hold on to bad stocks and ride them down all the time.
Unless the home is building value, the monthly payments you are making are not helping you much.
While interest rates are low, the adjustable rate loans seem extra special. But interest rates will have no choice but to rise as the economy recovers.
At the same time, fixed interest loans are available now for investors at what will be historically low rates. The interest rate is a bit higher on a fixed rate loan but they will give you better forecasting over what your minimum monthly payment will be until the end of the loan. No surprises.
It's great you can pay an extra $500 a month but before you did that I'd want to make sure you and your husband were continually building your emergency fund and you were saving consistently towards retirement. Paying down the mortgage is good but not if it means you are skipping other important financial commitments.
One other option here is you might want to sell the house and not be a landlord anymore. It does not sound like you've had any landlord surprises yet and I certainly hope you don't. All it takes is one bad tenant to cause a lot of damage and expense or a few months of sitting empty to run up the expenses.
If this was just a matter of looking for a better rate I'd suggest you contact a mortgage broker that represents a number of different lines of credit. Based on your individual credit score and income the mortgage broker could help put together the most logical and mathematically sound financing package.
But I sense there is more to the story.
You may want to hold on to the house for emotional reasons. I've seen it before. Sometimes people think if this relationship doesn't workout I'll have a place to go or fall back on.
Maybe you can share some additional details in the comments section below.
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