Get Out of Debt Guy

Should We Refinance Our Rental Property?

Posted September 6, 2013

WRAL Reader Question

Dear Steve,

My husband and I have 2 properties we live in one and rent out the other. We want to get out from under the larger mortgage and concentrate on savings.

Both properties are in San Diego CA. The home we live in now we owe $254,000 on and the estimate value is $315,000 fixed rate at 4.25%.

We are 6 years away from retirement and want to make the best move here. In order to save money to purchase a home in another area in a few years we are thinking about refinancing the rental property and moving into it perhaps a 15 year loan. We owe $104,000 on it at 4.5 fixed rate and the estimate value of the property is 170,000.

So many options out there this seems like the best thing to do, is there something we are missing?



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Dear Robin,

Thanks for being a reader here on WRAL.

First off, congratulations about starting to think ahead about retirement. And good for you to consider downsizing and economizing. I'm so proud of you for getting into this mindset. Nobody ever retires with too much money.

Ultimately the best mathematical answer, funnily enough, involves math. So in this case we'd need to consider the cost of refinancing the rental property you'd move in to. It might just be the cost of refinancing, even if added into the new loan, is going to cost you more than a couple years at the current rate.

Generally I'm not a fan of 15 year mortgages. Financial surprises in life happen and at least with a 30 year mortgage you can make monthly payments to pay it off in 15 years or less if you want but you have a lower payment to drop back to in case of emergency.

To evaluate the math on the refinancing, talk to your mortgage broker and let the math do the talking.

Steve Rhode
WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.