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You don't need to pay $4500 in closing costs. Ask your lender what a "no cost" rate would be. That means the lender credits you all your closing costs and you absorb it into your rate. As an investment, this is good because the interest on the higher rate is all a tax write off, though not all the $4500 would be if you paid it cash out of pocket.
By 'starting over' I just meant that the proportion of the monthly payment that goes to interest vs principal changes to be a high ratio again. For example, if your first payment was 95% interest in the intitial mortgage years ago but you have reduced that until maybe only 60% of the payment goes to interest, a brand new mortgage or refi today would have its first payment be 95% or so going to interest once again. Confusing, I know.
Apparently it is confusing...because that is not the case when you're refinancing at a shorter term and at a lower interest rate, as the OP is considering. With a shorter term, even the proportion is less. Much more of each payment goes to pay off the principal.
Then that's a pretty good deal, jackmighigan. This just was not my experience. So to be clear, if the proportion had dropped to 60/40 interest/principal, are you saying that the first payment of the new mortgage should start at roughly 60/40?
By 'starting over' I just meant that the proportion of the monthly payment that goes to interest vs principal changes to be a high ratio again. For example, if your first payment was 95% interest in the intitial mortgage years ago but you have reduced that until maybe only 60% of the payment goes to interest, a brand new mortgage or refi today would have its first payment be 95% or so going to interest once again. Confusing, I know.
It's a 15-year loan, so even the very first payment will have a higher percentage towards principal than OP had been paying before.
Debt-to-income ratio should be very good if they calculate the rental property the same way they did 3 years ago (i.e., with the signed lease, they took 75% of the rental income for the year, subtracted that from the mortgage payment, and then considered the difference a "debt" against my "regular" (i.e., job) income -- my DTI was still WAY under their limits as I have very little other debt).
Any suggestions/tips/etc. for figuring out what makes the most sense?
Since you have "Rental History" they look at the tax return, probably schedule E for the last two years to calculate your net rental income.
Talk with a tax professional about what you can deduct on the financing cost of an investment property.
Well, it's a paper loss of a few thousand dollars due to depreciation. Since I manage it myself it just comes off the income from my "regular" job.
Just remember that depreciation will lower your basis in the property, so that when you go to sell you will have a larger taxable gain. There's no guarantee as to what the capital gains tax rate will be in the future.
EDIT--Are you still at the point where you have lived in the house for 2 of the last 5 years? That's another consideration.
Last edited by jackmichigan; 07-30-2015 at 08:36 AM..
Just remember that depreciation will lower your basis in the property, so that when you go to sell you will have a larger taxable gain. There's no guarantee as to what the capital gains tax rate will be in the future.
Yes, I remember reading about this when I was thinking of buying my current house, so I do understand the "rules." With depreciation IIRC you HAVE to take it -- even if you DON'T, your basis in the property will still go down, and you won't have gotten any of the tax benefits of taking it. I have gotten pretty decent tax benefits out of it so far.
Quote:
Originally Posted by jackmichigan
EDIT--Are you still at the point where you have lived in the house for 2 of the last 5 years? That's another consideration.
I JUST passed the 3-year mark of not living there. My tenants who just moved out actually renewed in early May, so I knew I would pass the 3-year mark with tenants, and that was OK. Then literally days after they renewed, the husband was transferred to Louisiana, and we had included a "transfer clause" in the lease (which I should have worded better, but that was my own fault). So I was scrambling to get new tenants and thought, "I really don't need this." I actually asked a Realtor about putting it on the market, but the rental market here is very strong and the house is in a desirable area (the best elementary school in the little city, apparently), so I got new tenants pretty quickly/easily, and I could once again breathe. I do HATE those periods when current tenants leave, but I just have to remind myself that overall the benefits of being a LL have outweighed the cons, so ... here I go for another year (at least).
(I did get some odd and/or unfortunate applicants, but that's another story for another thread!!)
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