Okay, so I have dug into this issue a bit, but would love to get the advice of those wiser than me. I know the cash out refinance is not something to take lightly, and it is more often the case that it is not the way to go. But after running the numbers, I am wondering if my case is actually one where it makes sense.
Long story short I want to my property's equity to pay off school loans.
I owe 106k in student loans; numbers reflect principle and interest:
34k at 7.05% – Private 12k at 4.5% – Private 60 k at 5.5% – Federal
My gross salary is 90k per year, but that will be increased to 95k in 5 mos.
My wife's gross is 50k per year
Our current property has multiple rental units on it and is cash positive:
Mortgage (including taxes and property taxes): 1300/mo Income from rental units: 1550/mo
We live in a large unit that would rent for 900 – 1000/mo
Home value (will need to get a new appraisal to be official): $170k
Current interest rate is at 5.5% fixed for another 4 years then goes to variable after for the remaining 7.
No other debts
car insurance is minimal, not sure how much to be honest 100/mo?
credit scores are excellent: 814 and 825
I am considering doing a cash out refinance to pay off some of my school loans. Obviously I want to pay off the 34k since they are at 7% plus. However, I am wondering if it would make sense to pay off some of the 5.5% if I can get a rate at or slightly below 5.5% for the refinanced mortgage. I ask this for several reasons:
The tax right off for paying down student loans: will it help offset the burn from the closing costs involved in getting the refi?
We are thinking about buying a second home within the next year and renting the units we are currently occupying (which would bring in another 900-1000/mo in rental income to what was listed above – Making the rental income 2400 – 2500/mo).
Because the property is cash positive, and in a market where demand is very unlikely to go away, I am not as worried about the risk that is involved with a refi to pay off school loans.
we do have a security fund both for us (3 mo fund), and another for our rentals (although I would like the rental security fund to be bigger )
The psychological impact of seeing the school loan balance go down significantly will be worth something in itself.
So that is where I am at. I am approaching this with a lot of caution since you read over and over again that is route is typically not the way to go. Any advice is most welcome, especially pointing out things I am not considering!
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