You can refinance a rented house, but if you are almost done paying your mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home., consider the refinance fees and pay off your mortgage.
Q: My wife and I were listening to your Sunday show and tried for two hours to get through, unsuccessfully. Here’s our situation.
We purchased a foreclosed home last summer making it our primary residence. We feel we got a great deal since the home is in a very well maintained subdivisionA Subdivision is the division of a large piece of property into several smaller pieces. Usually a developer or a group of developers will build single family or duplex homes of a similar design and cost within one subdivision. with a very strict homeowners association (HOA) and other homes that have sold since we moved in have sold for a minimum of $40,000 more than what we paid.
We paid nothing for closing costs for the property, and the bank gave us the
difference of approximately $7,200 to cover real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. property taxes and
insurance. The term of the loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds.. is 30 years at an interest rate of 4.65 percent.
We currently rent our former primary residence for $1,100 per month. We still owe approximately $48,000 on that house. We pay $564/month at an interest rate of 6.5 percent.
After listening your show this week, I feel as though you understand the current real estate market fully and I believe you would keep the rental going and not try to sell in this terrible market. This is what we are thinking of doing.
If we go in this direction, does it make sense to refinance either of the properties?
A: Sorry you weren’t able to get through to this week’s show. The lines were jammed.
It sound as though you’ve made a really good decision to buy the new place, a decision that has already paid off for you as other properties in the neighborhood begin to sell at higher prices. We think you could try to refinance the other property, which you are now using as a rental, but you don’t owe that much, and it may be difficult to get a lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate. to refinance you now that you don’t live there. Mortgage lenders today are reticent to refinance for small amounts of money, and rental properties require at least 25 to 35 percent equityYour share of ownership in a company. Stockholders are often referred to as equity investors, because they invest in the equity of a company. (depending on the lender). Even if you have the equity, you don’t owe much, and doing a cash-out refinance is pretty expensive.
If the rental is cash neutral or cash positive, you should keep the property and wait to try and sell it. In the meantime, you’re paying down the mortgage and building up the property’s equity.
As for your current residence, you can try to refinance that loan. If you do, you might want to shrink the loan down to a 15-year fixed rate mortgage and take advantage of the lowest 15-year mortgage rates in history. As we write this, lenders are routinely quoting around 3 percent on a 15-year fixed-rate mortgage with very low closing costs.
But you have to see if it makes sense to do this refinance. The four ways to tell: You lower the interest rate; you lower the monthly payment; you shrink the term of the loan, and you can pay off the closing costs with the savings within eighteen months.
If you can meet all of those conditions, you have a home run refinance. And, that’s the only kind of refinance to do these days. And keep in mind that you can refinance your new home’s loan and may be able to get a reduced payment on the loan, but that refinancing will not lower your property taxes or your insurance costs. While you might get the loan interest rate down, you will have to factor the other costs that go into refinancing a loan to see if it works for you.
Thanks for listening to the radio show. It airs Sundays at 11 a.m. Eastern, on WSB, in Atlanta. You can call toll-free 800-WSB-Talk to join us on air, and listen online www.wsbradio.com.