Cash out Refinance Q

[marathon55]

We are remodeling our kitchen, laundry room, and entire first floor.  It should run us about $125K.  We have plenty of cash and stocks outside of retirement to pay this with a check.  However, some of that would require us to sell our some stocks and pay long term cap gains.  However, with rates so low we refinanced our 3.375 30 year (22 left) to a 20 year 2.625% with $115K cash out which results in about $500 more a month.  We always pay a healthy some extra each month but still want to pay this remodel off over 5-6 years with over payments.

The question: Knowing the payment won't reduce even if we pay the equivalent of extra principle over 6 years for the remodel.. would the interest amount be the same in the end if we took out a separate 5/6 year loan?

[imojoebunny]

I would just slowly sell the assets you have over time, to pay the extra $500 each month, if you can't cash flow it with your income. You have already refinanced, and taken the cash out, if I am reading your post correctly. I think it is too late to seek a heloc option, unless you want to refinance again, which depending on the amount can be $$$$$

[marathon55]

We can cash flow the extra $500 no problem. The HELOC seemed ok but had a higher interest rate. We just figured we will pay the same amount off in the same time with the refinance and take the lower interest rate.. plus lower our existing interest rate in the meantime.

[aprilsails]

Yes a cash out refinance generally has lower interest than a HELOC, so it seems as though if you do additional or higher mortgage payments to get you back where you want to be that would be the right path to choose.

[tealblue]

When we used a HELOC, our rate was prime (or if you were up to 90% mortgage to value ratio, it was prime +1.

I don’t know the Mathematical answer to your question but wanted to have you ask your lender if you could recast your mortgage.

Ours, through Chase, can be recast. I think if we pay $10k extra over a 12 mo period, then we can ask (maybe with a small fee) the loan to be recast. This would mean if we owed $100k, then paid $10k. They would recast the loan, saying balance is $90k left over the 18 years left on the loan and your new payment is $xx. We haven’t done that yet but it was an option and I guess could help if you are paying ahead but then also had financial issues in the future (or just wanted a lower payment instead of early payoff).