I recently took out the equity on my primary residence to buy a rental property,,,,, I decided to go with an interest only, as I only plan on holding on to rental for about 4 years,,, I sadly left behind my fixed 4 and 3/8ths,,, for a chance to purchse this property,,, I am at adjustable started at 5 and is now creeping up to 6,,, my question is - even thoough I am paying interest only right now,,, the balance on my primary is not going down,,, while I am still in this senario,,,Do I just have to bite the bullet and wait for the sale of the other property,, I plan on taking the profit and putting it toward my firt mortgage,,, so that I can retake equity out again to remodel,,,

I think that your options are limited. Since you do not have the cash to repay the interest only variable loan, you either have to wait for the sale of the rental to pay the loan down or refinance. Either strategy has strengths and weaknesses.

Holding out until the sale of the rental How good of an avenue this strategy is depends on the caps built into the ARM. If for example the annual cap is no more than a 1% increase, and you intend to hold for at least four years at the most you will be paying an average of 8% on the money.

There is also the risk that you won’t be able to sell the rental property at that time, which means that you will be stuck with an 8% loan at that time. This is not too far fetched since a high interest environment actually decreases house affordability and impacts the housing market. A rise in interest rates could act as a double whammy in your situation.

You also mentioned that you left behind a fixed rate mortgage in order to take out the equity. Does this mean that the amount owed is higher than the expected proceeds of the sale? If so, then your principal reduction will still leave you with a balance owed, which will need to be refinanced or paid off.

Refinancing The downsides here are the fees, the fact that the P&I payment will affect your cash flow, and the possible rate that you could lock right now on a thirty year is only slightly below 6% {not a big improvement}.

Either way, you are making a bet on how the interest rates are going to go. To really compare, you need to find out the numbers for both options {rates/fees/probabilities} then compare them side by side. Of course, probabilities being subjective are the hardest ones to pin down.

Good luck