Refinance rental to pay off residence?
I have a rental property I have owned for 15 years. It is down to a balance of 12k. It has basically been breaking even or a slight cost every year. (Home value is under 200k) At the current rate it will be paid off in a year, so it will be mostly profit (minus expenses/tax/insurance). I can refinance and pull out about 150k at a new rate of 4 3/4. Payments will make me at a several hundred dollar loss between rent and mortgage which I can afford to cover.
My home mortgage has a balance of 150k. It is a 75k balance primary at 5.25% that we are paying off faster and should have done within 3yrs. And about 70k in a home equity loan at prime which has been running under 3% but does change with prime.
If we refi the rental, we can pay off the loans on our residence in full.
I am concerned if the rental is paid off and making income we just end up paying more income tax on the profit. But I am also trying to factor in losing the income tax deductions on our primary home if we pay off that loan so we only end up using the standard deductions.
If we pay off the primary, we would take the money we now pay the mortgage with and invest it in indexed mutual funds.
We were not thinking of taking the refi money and investing it in mutual funds, rather then paying off the loan. But maybe we should? Also should we not pay off the whole primary mortgage and consider a down payment on another rental property (near a large university with pretty steady tenant source)? Which would allow continued interest deductions.
My head starts spinning with the choices. We are in our 40s with solid income, yet still well below the 250k definition of "rich" We maximize our retirement accounts every year. 2 kids still going through school, with college to come.
Any thoughts on how to decide what to do? My ultimate goal is a paid for house and paid for rental, as well as maximized savings.
Should we just continue as we are going which will be a paid off rental and paid off home within 3 years? Or should we refinance and "move" some money around to somehow save on taxes and maximize savings?
Thanks for any outside perspective!