Remortgaging to pay off investment property

[Missy Moo]

We purchased our current home outright, but couldn't sell our old home because it was upside down. We rented our old home out. The mortgage on the old home is at 5.875%, but no-one will refinance it because it is now and "investment property". How would we go about refinancing our current home to pay off the mortgage on our old one?

[lorraineb]

First question: Is the investment property earning enough to cover all the expenses and mortgage payment? If not, you're asking the wrong question...

[Missy Moo]

The rent has never covered the mortgage, but we are hoping that the property price will rise again in future years and our investment will eventually pay off. All I want to know is how to go about mortgaging a property we own outright that we can get a much lower interest rate on and then paying off the one with the ridiculously high interest rate.

[ashley_s]

It's called a cash out refinance and you can use the proceeds to pay off the 5.75% mortgage. If you purchased the home less than 6 months ago it may also be referred to as delayed financing and be limited to the purchase price and not any appreciation in value.

Source: I do loans for a living

[lorraineb]

I think you are getting ahead of yourself. have you done the calculations to see how much the house will need to appreciate for it to actually become an asset? With you losing money every month, it may never do so and you might want to cut your losses early. getting a lower interest rate doesn't fix the fundamental problem that you are losing money each month -- something that you never want to be doing with an "investment" property.

[Petunia 100]

I think you are getting ahead of yourself. have you done the calculations to see how much the house will need to appreciate for it to actually become an asset? With you losing money every month, it may never do so and you might want to cut your losses early. getting a lower interest rate doesn't fix the fundamental problem that you are losing money each month -- something that you never want to be doing with an "investment" property.

Yes, but the home wasn't purchased as an investment property. It was their home and the value fell, perhaps substantially. They are hoping to wait until prices are better.

MissyMoo, I don't know that I would mortgage my paid for primary residence. With a cash-out refi, you typically pay a higher rate. You will have to pay thousands in closing costs. You may not be saving as much as you think. And you will be putting your residence in jeopardy.

I suggest you contact a mortgage broker or lender and see what sort of terms they will offer you. Then crunch the numbers, and carefully consider if it is really worth it.

[Wino]

I think you should plan for "worst case" happenings. In Texas, where I'm from, one cannot lose one's "homestead" to bankruptcy or judgments. Therefore, your paid-off house would be safe. If you lose your livelihood, and cannot make payments, you can still be foreclosed. Worst case - in Texas - you would lose the investment house, but still have your homestead. If you do the refi, you could conceivably lose both houses.

I say don't gamble your primary residence on an investment. I'd rather be out money than out on the street.

[Missy Moo]

Thank you Ashley S, I have done some research and can get a 10 year cash out refi at 2.5% which will end up saving us nearly $200K over our 30 year loan. That will be worth while doing. We are not ready to sell the house at a loss when the prices are starting to rise again. Hopefully it will help with our retirement fund!

[lorraineb]

How much underwater is the property and how much are you losing on it each month? With the refinance, will you be in a position to break even with the rent then or will you still be losing money (just less?) How secure are the renters you currently have? I'm just making sure you are thinking this through properly and not digging yourself into an even deeper hole.

[Missy Moo]

We are not much underwater and we are very financially solvent. We just don't want to keep paying a ridiculous interest rate when we can get one that is less than half what we are already paying. I just wanted to know what the type of loan was called so that I could look into it. Please don't be worried on my behalf!

[sarawillson]

Good idea

Remortgaging to pay off investment property is a good idea. Through this way you can make your life free of property monetory issues. However, the better idea is to buy property or find the best rent to own houses options. I am also planning to buy and new home in Tampa florida and have a good site to Find rent to own houses options in Tampa FL. i am still browsing the site to find out the best rent to own options.

[Petunia 100]

Remortgaging to pay off investment property is a good idea. Through this way you can make your life free of property monetory issues. However, the better idea is to buy property or find the best rent to own houses options. I am also planning to buy and new home in Tampa florida and have a good site to Find rent to own houses options in Tampa FL. i am still browsing the site to find out the best rent to own options.

In what way does exchanging one mortgage for another "make your life free of property monetory issues"? The new mortgage must be paid each month, just like the old one was, right?

In what way would buying a third property with or without a rent to own option help Missy Moo refinance her existing rental property mortgage? In what way is it a "better option"?

[Wino]

We are not much underwater and we are very financially solvent. <snip> I just wanted to know what the type of loan was called so that I could look into it.

Then why do you need to borrow against your home mortgage?

I think you are trying to convince yourself that borrowing money will get you out of debt. If you read that sentence a few times, you'll see why most of us do not think your idea is good.

With the little information you have given, and your reply to the one and only voice that agrees with you - while ignoring all other points - suggests to me that you're here to get some kind of "anonymous third party support" so you can feel good doing something that in your heart you know is not a good idea.

To the second part, Pet100 told you: Cash out refinance or refinance with cash out option

Good luck, and I hope everything works out for you.

[~bs]

Then why do you need to borrow against your home mortgage?

I think you are trying to convince yourself that borrowing money will get you out of debt. If you read that sentence a few times, you'll see why most of us do not think your idea is good.

With the little information you have given, and your reply to the one and only voice that agrees with you - while ignoring all other points - suggests to me that you're here to get some kind of "anonymous third party support" so you can feel good doing something that in your heart you know is not a good idea.

To the second part, Pet100 told you: Cash out refinance or refinance with cash out option

Good luck, and I hope everything works out for you.

He's basically trying to do a swap. Generally interest rates are higher on investment properties. He wants to take out a home loan on his primary residence at 3%, then use that to pay off the 5.85% interest loan on the investment property. the net amount of loans outstanding will the the same, but he'll save money on the interest rate difference. It really depends on the interest rates, but if he can get a rate 2% lower or more, he should probably go for it.

[homefundingnow]

It seems you will have to wait a year more to get refinancing. Check any private mortgage facility is available or not. Consult with your lawyer about swap mortgage or if any private finance provider can be hired before you get the chance to refinance your old home.