What is the best way to determine if you should refinance a mortgage?
See the Mortgage Professor's calculators (#3). Go to bankrate and look up rates so you know what to punch in to those calculators. Our mortgage provider actually took the initiative to send us a refinance package with no closing costs to us and nothing added to the note; took us from a 30-year-fixed ~6.5% note to a 15-year-fixed ~5% note, and dropped the monthly payment in the process.  You might talk to your existing lender to see if they would do something like that for you; it gives them a chance to keep your business, and it cuts your costs. Yes, take the new rate, but instead of using the new 30 year term, calculate the payment as though the new mortgage were at the remaining term. 3 years into a 30? You calculate the payment as if the new mortgage were 27 years.  This will tell you what you are really saving. Now, take that savings and divide into your closing costs if any. That will give you the break even. Will you be in the house that long?  If you can find a no closing cost deal, it's worth it for even 1/8% savings.
You say that one property is 65% of the value of the two properties and the other is 35%.  But how much of that do the two of you actually own?  If you have co-signed mortgages on both properties, then your equity is going to be lower.  If you sold both properties, then your take away would be just half of that equity.  And while the 35% property may be less valuable, if you bought it first, it may actually have more equity.   It's the equity that matters here, not the value of the property.  With a mortgage, the bank is more of an owner than you are until you've paid down most of the loan.   You may find that the bank won't agree to a single-owner refinance.  A co-signed mortgage is a lot easier for them to collect, as they can hold either of you responsible for the entire loan.   If you sell the 65% property, then you can pay off any mortgage on that property and use the equity payout from that to buy out your relative on the 35% property.  If you currently have no mortgage, you'd even have cash back.  This is your fewest strings option.   Let's say that you have no mortgage now.  So this mortgage would be the only mortgage on the property.  It's not so much, as 15:65 is 3:13 or 18.75% of the value of the property.  That's more of a home equity loan than a mortgage.  You should be able to get a good rate.  It might reduce your short term profit, but it should be survivable if you have other income.   If you don't have other income, then seriously consider selling the 65% property and diversifying the payout into something else.  E.g. stocks and bonds.   Perhaps your relative would be willing to float you the loan.  That would save you bank fees and closing costs.  Write up a contract and agree to take assignment of the title at payoff.  You'll need to pay a lawyer to write up the contract (paying a modest amount now to cover the various future possibilities), but that should still be cheaper.   There's a certain amount of trust required on both sides, but this gives you some separation.  And of course it takes your relative out of the day-to-day management entirely.  Perhaps the steady flow of cash would provide what they need.   If your relative is willing to remain that involved, that can work.  Note that they may not want to do this, so don't get too attached to the idea.  Be prepared for a no.  This would be a great option for you, as you pretty much get everything you have now.  They get back the time meeting with you to make decisions, but they also give up control over those decisions.  Some people would not like that tradeoff.   The one time I was involved with a professional managing a property for me, the fee was around 7% of the rent.  If that fits your area, you might reasonably charge 5%.  That gives a discount for family and not being a professional.   There's a relatively easy way to find out what fits your area.  Look around and see what companies offer multiple listings.  Call until you find a couple that will do management for you.  Get quotes for managing your properties.  Now you'll know the amounts.   The big failing though is that this may not describe the issue that your relative has.  If the real problem is that the two of you have different approaches to property management, then making you the only decision maker may be the wrong direction.  This is certainly financially feasible, but it still may not be the right solution for your relationship.   If you get a no on this, I'd recommend moving on to other solutions immediately.  This may simply be too favorable to you. Unless you think it's likely that you'll move back soon, this is probably not the best way to get experience as a landlord. You might want to talk to a property management company and look at the fees they would charge to do your job as landlord. You should also consider that your mortgage may require you to occupy the house for a certain amount of time. Mortgages for non-owner-occupied properties usually have a higher interest rate and vetting criteria are more strict. If you're truly ready to pay an extra $1000 every month, and are confident you'll likely always be able to, you should refinance to a 15 year mortgage. 15 year mortgages are typically sold at around a half a point lower interest rates, meaning that instead of your 4.375% APR, you'll get something like 3.875% APR.  That's a lot of money over the course of the mortgage.  You'll end up paying around a thousand a month more - so, exactly what you're thinking of doing - and not only save money from that earlier payment, but also have a lower interest rate.  That 0.5% means something like $25k less over the life of the mortgage.  It's also the difference in about $130 or so a month in your required payment. Now of course you'll be locked into making that larger payment - so the difference between what you're suggesting and this is that you're paying an extra $25k in exchange for the ability to pay it off more slowly (in which case you'd also pay more interest, obviously, but in the best case scenario).  In the 15 year scenario you must make those ~$4000 payments.  In the 30 year scenario you can pay ~$2900 for a while if you lose your job or want to go on vacation or ... whatever. Of course, the reverse is also true: you'll have to make the payments, so you will.  Many people find enforced savings to be a good strategy (myself among them); I have a 15 year mortgage and am happy that I have to make the higher payment, because it means I can't spend that extra money frivolously. So what I'd do if I were you is shop around for a 15 year refi.  It'll cost a few grand, so don't take one unless you can save at least half a point, but if you can, do. If economic conditions are weakening, i.e. unemployment rising, business and consummer confidence dropping, etc., you can expect interest rates and thus mortgage rates to drop. If economic conditions are strengthening you can expect interest rates and thus mortgage rates to start rising. As you are in the US, and with official interest rates there at 0.25% there is not much room for these rates to fall further. I am in Australia, with official interest rates at 3.75%, and with the economic weakness in the US and Europe and with China slowing down, we can expect our rates to fall further over the next year. Regarding your timeframe of one to two weeks, unless there is a decision on rates in the US in the next week I don't think there would be much change, especially with rates there at record lows. You are probably best to shop around for the best rates now and refinance once you have found one you are happy with. "Interest rates are at a record low and the government is printing money. You can get a fixed rate loan at a rate equal to inflation in a healthy economy. Unless you know that you are moving in < 5 years, why would you expose yourself to interest rate risk when rates are about as close to zero as they can be? If your thought with respect to mitigating interest rate risk is: ""What's the big deal, I'll just refinance!"", think again, because in a market where rates are climbing, you may not be able to affordably refinance at the LTV that you'll have in 5-7 years.  From 1974-1991, 30 year mortgages never fell below 9%, and were over 12% from 1979 to 1985. Think about what those kinds of rates -- which reduce a new homeowner's buying power by over 40%, would do to your homes value." Is that an FHA loan you have? And you're wanting to do one of those low cost FHA re-fi's, right? The answer is that in between when you first got that loan and now, the government's changed the rules on PMI for FHA loans. It more than doubled the amount of monthly PMI you have to pay.  The new rates, efective April 18th, 2011, as as follows: It used to be 0.50% per year for the 30 year. So that's why the PMI would go up.  There is another rule in play too, specific to that no-cost FHA refi -- the government requires that the combined (principal+interest+pmi) monthly payment after the refi is at least 4% lower than the current payment. Note that the no-cost refi does not require a new appraisal.  Some options present themselves, but only if you can show some equity in a appraisal: 1) if an appraisal shows at least 10% equity, you can go refi to a standard mortgage. You might even be able to find one that doesn't require PMI at that level. If you have 20% equity, you're golden -- no pmi. 2) See what the monthly payment will be if you refi to the 15 year FHA mortgage. Between the much lower PMI, and the much lower interest rates (15 year is usually about 0.75% less than a 30 year), it might not be much more than what you're paying now. And you'd save a huge amount of money over time, and get out from that PMI much earlier (it stops when your principal drops below 80% of the loan amount). This would require that reappraisal. What kind of financial analysis would make you comfortable about this decision? The HELOC and ARM are the biggest red flags to me in your current situation.  While I don't expect interest rates to skyrocket in the near future, they introduce an interest rate risk that is easy to get rid of.  Getting rid of the HELOC and converting to a fixed mortgage would be my first priority. If you also want to upgrade to a new home at the same time (meaning buy a new home contingent on the sale of your first, paying off the HELOC and mortgage), that's fine, but make sure that you can comfortably afford the payment on a fixed-rate mortgage with at least 20% down. I would not take additional cash out of your equity just to save it.  You're going to pay more in interest that you're going to get in savings.   From there things get trickier.   While many people would keep the first property on a mortgage and rent it out, I am not willing to be a landlord for a part-time job, especially when the interest on the mortgage gouges my return on the rent.  PLus leverage increases the risks as well - all it takes is to go one or two months without rent and you can find yourself unable to make a mortgage payment, wrecking your credit and possibly risking foreclosure. So my options in order of precedence would be: At what point does it make sense to become a landlord? The complicated answer is when the benefits (rent, appreciation) relative to the costs (maintenance, interest, taxes, etc.) and risks (lost rent, bad renters, home value variance) give you a better return that you could find in investments of similar risk.  The simple answer is when you can pay cash for it.  That takes interest and lost rent out of the equation.   Again, some are willing to take those risks and pay 20% down on rental property.  Some are able to make it work.  Some of those go broke or lose their properties.   when calculating the 20% down of a new property, does that need to be liquid funds, or can that be based on the value of the home you are selling You can make the purchase of the new home contingent on the sale of the first if you need to get the equity out of it to make the 20%.  Do NOT refinance the first just to pull out the equity to make a down payment.  It's not worth the fees of a refinance. "I'll assume you live in the US for the start of my answer - Do you maximize your retirement savings at work, at least getting your employer's match in full, if they do this. Do you have any other debt that's at a higher rate?  Is your emergency account funded to your satisfaction? If you lost your job and tenant on the same day, how long before you were in trouble?  The ""pay early"" question seems to hit an emotional nerve with most people. While I start with the above and then segue to ""would you be happy with a long term 5% return?"" there's one major point not to miss - money paid to either mortgage isn't liquid. The idea of owing out no money at all is great, but paying anything less than ""paid in full"" leaves you still owing that monthly payment. You can send $400K against your $500K mortgage, and still owe $3K per month until paid. And if you lose your job, you may not so easily refinance the remaining $100K to a lower payment so easily.  If your goal is to continue with real estate, you don't prepay, you save cash for the next deal. Don't know if that was your intent at some point.  Disclosure - my situation - Maxing out retirement accounts was my priority, then saving for college. Over the years, I had multiple refinances, each of which was a no-cost deal. The first refi saved with a lower rate. The second, was in early 2000s when back interest was so low I took a chunk of cash, paid principal down and went to a 20yr from the original 30. The kid starts college, and we target retirement in 6 years. I am paying the mortgage (now 2 years into a 10yr) to be done the month before the kid flies out. If I were younger, I'd be at the start of a new 30 yr at the recent 4.5% bottom. I think that a cost of near 3% after tax, and inflation soon to near/exceed 3% makes borrowing free, and I can invest conservatively in stocks that will have a dividend yield above this. Jane and I discussed the plan, and agree to retire mortgage free."