Forum Thread

Cash out refinance mortgage

nthoangga 2 10 September 2, 2016 at 09:27 PM

Thread Details

Hi guys,

About 2 years ago I bought my 1st home and decided to go with a 10 years fixed 3.125% 205k loan. Now with the reason of wanting to pay way less monthly and to not have all my asset tied up to the house, I want to do a cash out refinance. Lucky for me that rate is still low and housing market has been up recently. I just ask Sebonic Financial today and they gave me a quote of 30 years fixed 3.875%, $2400 closing cost - $800 credit, + $52k cash out (with my estimated of house evaluation).

The reason I want to do this is to have more of my money putting in mutual funds, as this will more diversified my portfolio as I'm feeling I'm very house poor right now as I put most of my money in the house.
Is there any pros and cons with this? Should I pull the trigger and do it before rate go up again?

TL;DR: Current 10 years fixed 3.125% 205k mortgage. Want to do a 30 years fixed 3.875% fixed refinance, $1600 closing cost, $52k cash out. Will invest extra money in mutual funds. Pros and cons?



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You sure you will do better than 4% that you are paying on the loan? I'll take a paid off house over investing in an iffy economy
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A couple of questions to think about before you make the move.

What is your age and how much are you contributing to retirement accounts already?
-If you are already contributing at a reasonable amount and can afford the high monthly payments it may be worth continuing that trend. Once the house is paid off you can more aggressively fund other accounts.

How long do you plan to live in this house?
-Is this a house you plan on living in forever or just the next 5 - 10 years. Living in a paid off house for an extended period of time could really be life changing. Lots of freedom in not having that payment.

What are your plans to invest the money?
-You said you were going to put the money into mutual funds, all at once or do you plan on dollar cost averaging in over the coming months or years?
The market is right around all time high but no one really knows if right now is a good time to put a significant amount into the stock market. Even if the market averages 10% percent the next 5 years is it worth it? Look into how much extra interest you would pay toward your house and what the 52,000 dollars will look like with different market returns over the life of your next mortgage (30 years).

If you wanted to pull the money out to start your own business or to fund an investment opportunity with a high potential rate of return then I would probably be more supportive of the market. But just to dump the money in the stock market does not really excite me. Remember that your personal home is a consumption item and you have chosen to reduce your long term spending on the home by paying down the home quickly which is not conventional wisdom but seems like a good idea.

If you really feel the need to do this would you consider doing a 15 or 20 year loan instead of the 30, consider all options.
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Rob_799's questions are excellent and I just want to comment that I am seeing similar scenarios from my clients that were referred by their Financial Planners.

There are the two primary schools of thought, where some want to payoff the house and then those who want to leverage the house with minimal monthly payments and diversify their assets and plan investments that will hopefully yield higher returns than the low tax deductible interest rates in this current environment.

While cashout refinances do incur pricing adjustments, your qualified credit score and Loan To Value will impact how much of an adjustment that would be. Does the 3.875% 30 Fixed rate provide any lender credit? Depending on your credit score and LTV you may be able to do a little better, or receive a lender credit to further reduce costs for the transaction.

Old Hippy & Mortgage Pro
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Old Hippy & Mortgage Pro
I'm Doing refi.

PNC IN BRANCH 3.26% over 10 years under $100 k loan. $0 closing costs if kept at least 3 years. Currently at 4.5%.

Your net worth goes down by closing costs. Change in interest rate sounds horrible. My loan is very small so paying any closing costs would make it not worth doing in my case.

Do a HELOC sounds way better. PNC can do in branch again is better. But probably better to pay down mortgage.

Very conservative where people almost always suggest paying off house vs. mutual funds etc.

Which way will you sleep better? I know I will sleep better with mine paid off vs. market exposure.
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Don't do it. You have a 10 year loan, with 8 years left on it. you'll own it free and clear in only 8 years. Don't replace that with a 30 year loan and try to make money via other means. No way will you have more in 8 years the the value of your house (probably north of $205K)
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Time to stop the war.....on businesses and individual success!

"It is impossible for a man to learn what he thinks he already knows." -- Epictetus (c.55-c.135)

A government big enough to give you everything you want, is strong enough to take everything you have. -- Thomas Jefferson
Don't do it. I don't see an upside. If you are truly needing to lower your cost then I could possibly understand the refinance. But the cash out option mystifies me. I see that as being one of the worst financial moves ever. And financial planners that want you to take a long term rate against the market are FOOLS.... End of..
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Don't gamble your home. Pay it off and own it outright without that payment burden every month. You'll always need a roof over your head too.
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Agreed with others. Refi to a 15 or 20 year note IF you need a lower payment. Your rate will be the same or lower than it was before, hopefully with minimal closing costs. That cash out option is keeping your new rate higher than it needs to be, too.

With a 15 or 20 you'll have additional cash flow every month, which you can choose to save or invest. You'll still have the house paid off way ahead of "most" people.
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I'd only cash out if you intended to use the $$ to improve the property..... you're so close to being done with a mortgage.
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I will do the same but only to pay off a lot of credit card debt. I wouldn't buy a mutual fund right now, the market is at an all time high.
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