I know there are ongoing debates here about whether or not to pay off the mortgage on one's primary residence, but what about for rental property?
DH and I own a house north of San Diego that we lived in 5 years before moving to CO. After some debate, we decided to keep it and rent it out rather than sell, partly in case we ever want to move back there. We currently have 11 years left on a 15-yr fixed 4.5% loan.
Right now, the cash flow is negative. We are subsidizing it about $3000 per year, and I'm not counting on it breaking even for a number of years. However, the house is a little more than a mile from the beach, so we're hoping that in the long term the appreciation will make up for the initial losses.
Points in favor of keeping our current loan:
- less interest paid overall
- quicker payoff would provide great cash flow starting a few years into ER when the mortgage is done
- our current cash flow situation is manageable, and we have not had to reduce other retirement investments to subsidize the rental
Points in favor of refinancing for a lower monthly payment:
- lower payments would mean more $ to invest in something earning more than 4.5%
- instant positive cash flow, or at least break even
- more flexibility in the long term to invest or spend money as we want or need to, since it won't be tied up in the house
Thoughts on this? Things I've overlooked? Is this really any different than making the same decision about a primary residence?
Edit: I just realized that my title may have been misleading in that I don't mean pay it off in a lump sum, it's just a question of keeping the 15-year loan or moving to something like a 30-yr fixed with a lower monthly payment.
DH and I own a house north of San Diego that we lived in 5 years before moving to CO. After some debate, we decided to keep it and rent it out rather than sell, partly in case we ever want to move back there. We currently have 11 years left on a 15-yr fixed 4.5% loan.
Right now, the cash flow is negative. We are subsidizing it about $3000 per year, and I'm not counting on it breaking even for a number of years. However, the house is a little more than a mile from the beach, so we're hoping that in the long term the appreciation will make up for the initial losses.
Points in favor of keeping our current loan:
- less interest paid overall
- quicker payoff would provide great cash flow starting a few years into ER when the mortgage is done
- our current cash flow situation is manageable, and we have not had to reduce other retirement investments to subsidize the rental
Points in favor of refinancing for a lower monthly payment:
- lower payments would mean more $ to invest in something earning more than 4.5%
- instant positive cash flow, or at least break even
- more flexibility in the long term to invest or spend money as we want or need to, since it won't be tied up in the house
Thoughts on this? Things I've overlooked? Is this really any different than making the same decision about a primary residence?
Edit: I just realized that my title may have been misleading in that I don't mean pay it off in a lump sum, it's just a question of keeping the 15-year loan or moving to something like a 30-yr fixed with a lower monthly payment.