Assuming I close on Friday, the final refi numbers are as follows.
Rental 1 $250 back at closing, $3222 added to principle and payment reduction of $183
Rental 2 $0 back at closing, $1530 added to principle and payment reduction of $59
My home $168 back at closing, $1763 added to principle and payment reduced $127
Total $6515 added to principle – $418 back at closing minus $2235 saved in no mortgage payment for Aug.
$369 dollars a month in reduced mortgage costs. $3862 Total Cost/$369 = 10 month payback.
16 month payback if you don’t count the saved mortgage payments. Pretty much a no brainer in my opinion.
Ideally I would use the saved mortgage payments as principle pay down, but one rental goes vacant at the end of the month and I need to do some upgrades.
That money will pay for the upgrades and build my reserve. I will be xeriscaping the front yard and may need to do some indoor maintenance.
Because I only have 2 rental properties at the moment, I want 6 months reserve per property. Around 5k per property. Once I have 10k reserves, every dime over that will go to principle. On low maintenance months, that could be as high as $800 extra towards one mortgage. That can quickly reduce the mortgage. My cash flow will average a conservative $300/mo so that will likely be the average principle reduction each month. My plans may change, but for now this is a good start.
That’s all for now. I leave you with this quote ” We are the true architects of our lives. Only we as individuals and individuals alone, carry within us, the inner ability to make any changes to it’s blueprints.” Robert M. Hensel
10 month break even point is excellent. How much of a factor on your decision to refi was the fact you are actively looking for a new home?
When I was going to refi over a year ago, my break even point was 4 years and that was why I didn’t refi at that time. I didn’t want to be locked into my place for that long.
Scott,
Actually it was a big factor. I can get much better rates for more current home. Plus we will make it a rental. This will only help the cashflow.
Jason
Good stuff, Jason. I like your plan for the 6-month reserves and then focusing on reducing principal. Increased cashflow is always a plus!
Thanks Shae.
I’m all for a bit of leverage to make things happen, but I don’t like having my neck out there either. I plan on reducing the principle of the first property I want to sell. Likely my 2/1 as it has the lowest overall return and the money can be put to better use on another property.