Is a cash out refi ok?

[seriously1]

We have been given estimates to refinance our mortgage to go from 3.5 to 2.9 and cash out about 35k which we would use for home improvements. This would give us a slightly less mortgage payment then what we are paying now.
What am I missing? It seems like a great opportunity to renovate our kitchen and would raise our home value.

[ellipses84]

What’s the loan term? How long have you owned the house? If you were 10 years into a 30 year mortgage, and it’s re-financing to 30 years, that’s 10 extra years.

[sdlaura]

We just did a cash out refi. Went from 3.75 to 2.875, kept our payment the same and took $70k out. DH’s job is not super duper stable so we are just planning to keep it in cash in the bank. It extends our loan from 21 to 30 years, but given that there are no prepayment penalties and we both work in the investment industry and would expect to make more than 2.875% on our investments- I figure if someone will give us money that cheap, we will take it in this uncertain environment. Our new loan is about half of what our house would sell for.

[seriously1]

Thanks for your insight!
We are 5 years into a 30 year loan. We will be in this house for at least seven more years until our children graduate high school. We plan to downsize when our kids are grown.
It’s a 30 year fixed rate loan. We are in a high cost of living area / DC area. I guess the only thing I’m thinking about is I don’t want to lose all of our equity but by the time we sell in 7+ years the equity will build again and we are using the money for home improvements so we are putting it back in the house. It seems like a great opportunity to make improvements that would cost much more to finance in a Heloc or credit card. With the low rate, it would likely be the last time we are in this position to refinance.

[simpsongal]

It sounds pretty sweet. When we looked into a cash out refi pre covid we had trouble finding competitive rates or loans w/o points and whatnot (also in Northern Virginia). We ended up doing a $75K HELOC and refinanced a few months later to a 20 yr mortgage (same rates offered at the 30). We plan to be here at least 20 more years if not forever (DH's entire family lives in this town), so paying off the mortgage is a higher priority.

[Susie]

You can essentially figure out the downside by figuring out how much you will spend over the 25 remaining years on your existing mortgage, vs. what you will spend over the coming 30 years on the proposed mortgage.  That's the down side:  60 extra monthly payments, and interest on the cash out amount.

In general I hate the idea of a cash-out refi, and prefer to save up for renos.  OTOH, at 2.9%... it's hard to get too worked up about the interest.

[sandandsea]

I think it depends on what your goals are. We are trying to pay off the mortgage and have committed to ourselves to save and pay for all renovations with cash. We can always take out a mortgage later if we had to, but I don’t want to end up with little equity if the market sours or if we have to sell for some other reason (move closer to family, move for jobs, economic reason, basically any unpredictable circumstance). I think it’s an easy slope to slide down and people end up upside down without realizing it as soon as the market turns.

[sparty04]

We recently did one and took extra out for a pool. We went from 28ish years to 20 and it increased our payment maybe $100 a month. After running the numbers, it made more sense to do this vs a home equity loan or private loan.

Closing costs were a little higher because of the cash out but not a big deal

[fernweh]

We are considering doing this for some home improvements. I have a bit of a dumb question... do you have to put a down payment it seems silly considering they are just giving you cash...

[seriously1]

Aug 7, 2020 13:20:41 GMT -5 fernweh said:

We are considering doing this for some home improvements. I have a bit of a dumb question... do you have to put a down payment it seems silly considering they are just giving you cash...

Im not sure about your question. We already have a mortgage on the home and will be refinancing the mortgage so there will be closing costs which they will roll into the loan.

[dancingirl21]

We did this in November. We were only 2 years into a 30 year mortgage. We cashed out $40k and our rate lowered and we are paying $9 extra per month. We took that money and fully finished our basement plus did a couple of other smaller home improvements. There was no downside for us.