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4 years into first mortgage @ 4.5 % should I refinance @ 3.6?

nate81 1,015 254 June 5, 2016 at 04:55 PM
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First time home owner.....4 years into my mortgage and the rate is 4.5%....I have around 70k equity in the home but it needs a kitchen and 2 bathroom remodel....I owe 85k.

Should I refinance and take out $115k or so to do some remodeling and lower my interest rate?

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#2
Wait until you can pay cash for the remodel.
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#3
Run the numbers, the biggest variable will be how long you plan on staying there - and what the PBP is WRT interest rate and cost to do the refi.

As for me, I wouldn't cash out - what are you spending $115k on?
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Quote from Dr. J View Post :
Run the numbers, the biggest variable will be how long you plan on staying there - and what the PBP is WRT interest rate and cost to do the refi.

As for me, I wouldn't cash out - what are you spending $115k on?

We still owe 85k.....we have 70k equity in the home. We would refinance and make the loan 115k or so to remodel some rooms that need it at some point or another anyways. Rates are lower now than when we purchased. We're not leaving anytime soon.

I don't know what pbp or wrt is
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Quote from nate81 View Post :
We still owe 85k.....we have 70k equity in the home. We would refinance and make the loan 115k or so to remodel some rooms that need it at some point or another anyways. Rates are lower now than when we purchased. We're not leaving anytime soon.

I don't know what pbp or wrt is
PBP = pay back period - the time span which the refi will have paid back itself. If, say, it takes 2 years to pay back but there's a good chance you'll move in 1.5, then it doesn't make sense to go through with it

WRT - with respect to
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#6
if you refinance and take 30k in cash, you are paying 523 vs 386 per month or approximately 49k over the life of the 30yr mortgage.

as far as refinancing from 4.5 to 3.6% on 85k, it really depends what the closing costs are. if you take the difference in monthly payments and divide the closing costs by that, it'll tell you how long it takes to breakeven roughly.

for me, a 1% drop in rate didn't save me much since my mortgage was low and i pay extra on the dividend. the breakeven was about 5 years at which point I'd be about 4 years from paying it off.
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so i spent time making a signature. only to realize that you couldn't put an image in the signature. please enjoy the link to my signature, assuming it works.

http://imgur.com/FtBghZ2
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Did OP take into account that cash out refi's usually have higher rates than limited/no cash out? That would make the decision easier if the rate spread wasn't as much as OP hoped.
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Quote from Dr. J View Post :
Did OP take into account that cash out refi's usually have higher rates than limited/no cash out? That would make the decision easier if the rate spread wasn't as much as OP hoped.

I didnt take that into account...is that common practice? I know nothing about refinancing.
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Quote from nate81 View Post :
I didnt take that into account...is that common practice? I know nothing about refinancing.

yes although I can't tell you necessarily how much the difference will be.

A quick look with some assumptions, 30 yr fixed from amerisave, for a similar rate and payment, the points are higher for a cash out vs straight refi. For example, for 3.25% ($500 payment), the fees/points are $4084 and $3365 respectively (~$700 difference).

Alternatively you can compare the point at which the refi would be little OOP; 3.625% for the no cash out with $325 total in fees/poitns and a $524 payment or 3.75% for cash out with $533 payment and $299 in fees/points.

AS's rate/term schedules make it easy to pick out the term/rate you want based on what you are willing to have as a payment and how much you are willing to pay for the refi.

As above, it seems you can either pay a premium upfront for the cash out, or pay over the life of the loan (0.125% is a huge penalty for this IMHO).

[Again I made assumptions in the above, most notably state, county and credit worthiness, so you should check these yourself]
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