A month ago our real estate mortgages/debt/leverage looked like this:
|
Property |
Financing |
Current Balance |
PITI |
|
Rental Property #1 |
5.63% 30yr fixed mortgage |
$ 110,900 |
$ 1,030 |
|
Rental Property #1 |
HELOC 3.25% variable APR |
$ – |
$ – |
|
Rental Property #2 |
6.50% 30yr fixed mortgage |
$ 95,200 |
$ 820 |
|
House #3 |
5.8% 30yr fixed mortgage |
$ 87,400 |
$ 820 |
|
House #4 (Primary) |
4.875% 30yr fixed mortgage |
$ 239,500 |
$ 1,500 |
We already have a short term (less than 1 year) plan to sell Property #3. The plan is to put any equity gained from the sale of the townhouse into paying down Rental #2’s mortgage.
Given our shift to a single income (with my wife staying at home, working a few hours per week) our monthly cash flow has gone down to an uncomfortable level for us given our monthly expenses. Even after we sell property #3 I’d still like to be in a more comfortable postion.
After looking at our loans, its clear to me that we need to focus on the 6.5% mortgage on Rental #2. It has the highest interest rate, and the smallest loan balance. By eliminating this monthly payment (or reducing it significantly) we will be in a much better postion for any unexpected events in the future. It would mean an extra $600-$700 in monthly cash that today is today allocated to this mortgage payment.
So we looked at our options and opened an Investment Equity Line of Credit (IELOC) on Rental #2. The total costs for the loan were less than $450 at our local credit union. The variable rate for the IELOC is set at pime + 1 (currently 4.25%). We paid off the 6.5% 30 yr mortgage by maximizing our HELOC on Rental #1 (with the lower rate) and taking the remaining balnace from the new IELOC. Given our plan is to pay down these loans signifcantly in the next year, I am not as concerned about the variable rate and see an opportunity in the short term to realize significant interest expense savings.
Here is what our loans look now look like:
|
Property |
Financing |
Current Balance |
PITI |
|
Rental Property #1 |
5.63% 30yr fixed mortgage |
$ 110,900 |
$ 1,030 |
|
Rental Property #1 |
HELOC 3.25% variable APR |
$ 25,000 |
$ 60 |
|
Rental Property #2 |
IELOC 4.25% variable APR |
$ 70,100 |
$ 856 |
|
Wife’s TownHouse #3 |
5.8% 30yr fixed mortgage |
$ 87,400 |
$ 820 |
|
House #4 (Primary) |
4.875% 30yr fixed mortgage |
$ 239,500 |
$ 1,500 |
A couple benefits from these moves I’m expecting:
1) The amount of interst we are paying will go down allowing for quicker loan balance paydown.
2) I can use our cash savings (including emergency fund) to help accelerate payoff of this mortgage (since we can pull it back out if needed).
3) Additional flexibility with the LOC for future opportunities or emergencies when cash is needed.
4) No more escrow on Rental #2 – I will be able to handle taxes and insurance without escrows so a little extra cash I can earn interest from going forward.
5) As we paydown the balance on the LOC our required monthly payments will reduce adding flexibility if needed for cash flow.
Read more of Refinanced to an Investment Equity Line of Credit…
