My mother and I currently own a home that I am thinking about doing a refi on so she can move to a retirement type society, she will be buying the house outright and won't have a mortgage. The scenario is this. We own a home that the existing mortgage is 130k, there is a equity loan out on it for 50k with 22k being the remaining available balance. Now what I was thinking was renting out the home for as long as there is positive cash flow coming out of it and possibly sell over the next 1-5 yrs depending on how the market goes, rental could be somewhere around 1200-1500 so covering the mortgage wouldn’t' be a issue but here is the scenario. I want to refi add back in the equity to the mortgage and make a steady interest only payment so that the mortgage is covered. I am thinking about doing a 12-mta loan so that the rental pays mortgage and then some, worse case scenario is that the rates go up and we sell. What do you think about this. I hope I explained well. Thank you for your time and thoughts.

Actually, the worst case scenario would be for you not to be able to sell at your desire sales price, which could be a possibility in an environment of rising interest rates.

Does it make sense? Sure it does, but selling the house now makes sense also.

Good luck

Interesting that you mention that. You think that selling now may be a better opportunity? The mortgage on the house is 130 and it values at well lets say over 200k, with limited mods that would be done within 1-2 month of sale. Thank you for your quick response

While the mta loan is probably the best arm for your situation (being one of the most stable, as well as the easiest to qualify for)...If you're looking for stability, you may want to consider a fixed interest rate, or at least something with an interest rate fixed for 3 yrs, etc. You can still get a very good rate with an interest only option....
There are even option arms available (linked to the COFI) that would have a fixed interest rate for 3 or 5 yrs, and still give you the "pick a payment" option....30 yr fixed, 15 yr fixed, Interest Only, or 1.35% payment factor (deferred interest). As far as selling now, the real test will be whether or not you see the property appreciating or producing rental income. Refinancing will use a portion of the available equity, so if you plan to refi and list for sale immediately, it may not be beneficial to you.

Thank you Gulf you have been very very helpful and make alot of sense.
I already have the equity loan on the property, combining the loan and the mortgage the house mortgage total would be 180k it was appraised at over 200. I live in a popular area in NJ so I don't see it going down too muchm to be honest. Of course that is a risk cause you never know how the market is going to sway. The object is to keep the property for some time but I guess at the same notion if it was rental you would want it to cover some of the mortgage so at least it appreciates. I am going to look into a fixed for 3-5 yrs and some cofi loans.


bump for anyother views on this topic
Thanks all