Cash out refinance mortgage

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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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1. As far as I know, if you follow the rules, then the interest on cash out piece is not tax deductible. You should factor that in your thinking.

2. While I have always championed that paying off mortgage early is a bad thing to do, I don't like the numbers you are working with. You would be paying 0.75% extra on 200K to get a loan for 50K at 3.875 (numbers adjusted slightly for math). So basically, you are paying 0.75*4 + 3.875 on the 50K - i.e. 3% deductible interest + 3.875 non-deductible. Factoring in taxation etc., you would need to earn around 10% just to break even and all this when SPY is near its all time high.

Your boat sailed long time ago and the prudent thing to do is probably not jump in the water in an attempt to catch it.

If you do move into a bigger house, then you can get a new loan and things would be different.

Betting the house on the investment market is a bad idea at any time. With the market at record highs and facing an election with no good choices is strongly a NO NO NO !!
Now that I said my opinion, I only ask one other thing of you.
Review the previous thread. Some of it may fit you. Some may not.

https://www.fatwallet.com/forums/finance/1523220

JW10 said:   Betting the house on the investment market is a bad idea at any time. 
If he has the income to support the new mortgage payment, he isn't really "betting the house."  He's simply reallocating his investment in real estate to an investment in other markets, albeit using leverage to do so.

I agree with others that with the costs involved and the present market conditions, it doesn't seem advisable at this time, but I wouldn't issues an absolute "don't do it no matter what."  

Accepting a .75% rate increase to pull out 50k to invest in mutual funds? Really??

Better off leaving things alone and saving extra funds as they become available. Especially in a toppy stock market such as the current one.

vegas4x4 said:   Accepting a .75% rate increase to pull out 50k to invest in mutual funds? Really??

Better off leaving things alone and saving extra funds as they become available. Especially in a toppy stock market such as the current one.

  Keep in mind it's not just $50K cash out, it's really also stretching the loan out to 30 years.

In the past, FWF has proved to be an excellent contrarian indicator. When we have people posting that they want to withdraw $50k equity from their house and put it in mutual funds, it is a sign of a pending large market correction.

It doesn't seem as drastic as betting the house on the market - but viewing an earlier decision to take a 10 year mortgage as too extreme. It is pretty far on one side of the bell curve.

I would recommend getting quotes on a simpler no cash-out refinance to a 30 year term. That rate would be lower, plus the balance would remain roughly where it is. So while there'd be no immediate injection, your monthly cash flow would improve even more.

If it were me, I'd consider the refi to 30 years with no cash out -- if you can find lower closing costs.

Then invest the difference in mortgage payments.

get quotes for no closing costs to see what rates you'd get without throwing more money into it. Your original quote has 1 point in fees (before or after third party fees?), which is significant. If you might go and change your mind in a couple years and want to go back to a 10yr instead of 30, it makes no sense to throw away money buying points at this point.  Since you're already considering changing from 10yrs to 30yrs (which usually have pretty much opposite reasoning behind them), I'd guess you're likely to change your mind again.

Why is no one suggesting that it be placed in a high-yield savings or rewards checking account, or even a CD ladder? Between those yields and the mortgage interest deduction, any loss is minimal.

I firmly believe that if one has the means to make the monthly PITI payment, it is foolish to hold any equity beyond 80LTV right now. Just don't put those proceeds in a non-insured vehicle as others have already mentioned.



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