I purchased my home during the COVID boom and now use it as a rental property while I live in a new home. The mortgage is around $1900 (including taxes, interest, and principal) and the rental income is $2300. I’m considering refinancing to remove PMI and possibly take out $20-30k for a down payment on a new primary residence, as my family is growing. Would this be a good idea?
Unless you really need the cash, I wouldn’t refinance. Keeping your 2.85% mortgage, even with PMI, is a better option. Doing a cash-out refi will likely raise your interest rate more than a standard refi would.
PMI on an FHA loan never goes away, but it does decrease annually as your principal balance reduces. Given your current rate of 2.85%, I would recommend keeping it. Refinancing isn’t a good idea in my opinion.
If you’re looking to do a 75% cash-out on a rental property, your new rate could be around 7.5% with a monthly payment of about $2123 for principal and interest. Add taxes and insurance, and you might net around $30k.
Consider asking your lender to drop PMI due to the increased home value. You could also take out a separate loan with a higher rate but smaller loan amount, so your total monthly payment may be lower than refinancing the entire mortgage.