Q&A: Rental Property

Q – I have a rental property with a very low mortgage rate that comes due in 2015. I would like to pay it off and then refinance. What are your thoughts? – C.C.

A – It’s very likely that mortgage rates will be higher in 2015 so the idea of refinancing now has appeal. However, you have to analyze the numbers carefully. For starters, there may be a substantial penalty involved if you pay off the current mortgage now. Ask the lender what the cost would be.

Second, you say you now have a very low rate. By refinancing, you will probably end up paying a higher rate for the next two years than would otherwise be the case.

In short, the cost of early refinancing may be so expensive that it would be better to wait until the end of the existing term and then try to negotiate the best possible deal. – G.P.

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