Refinance advice?

[BlondeSpiders]

Hello, I'm hoping for advice from the wise MM folks!

We're considering refinancing our townhouse that we purchased 10/2020. The loan was for more than 80% of the house value, so we have mortgage insurance. Our house value has increased by a significant amount, as evidenced by the other units in our row.

We'd like to take cash out and eliminate the mortgage insurance. If the APR is higher on the refinancing loan than our current rate, is it a bad idea to refinance?

Thanks for your guidance!

[Susie]

Is your current loan conventional or FHA?  

With FHA, you would need to refi to get rid of mortgage insurance, but for conventional you likely could remove it by paying the balance down to a 80% or 78% LTV.  If we're talking about an FHA loan with lifetime MIP, you'd need to run the numbers to see if you'd come out ahead by refinancing with no MIP/potentially higher rate.  If we're talking about a conventional loan, you're probably better off keeping the loan you have and paying it down to 80% LTV ASAP rather than refinancing to a higher rate.  In either case, definitely don't take cash out if the rate is higher than what you got in 10/2020.

[flygirl]

Besides what Susie posted, I think the other question is what is the cash out for? If it’s to pay off unsecured debt/credit card debt, then I’d say definitely not a good idea to move to a higher rate.

[wildrice]

I would not refinance to a higher rate. What is your current rate and what would you be refinancing to? What are you paying for mortgage insurance? And why do you want to take cash out?

We have a conventional loan and our PMI is really low - I think it was $50 a month and then when we refinanced last year, it went down to like $17 per month - I think because our value of our home also went up so we had more equity. If yours is also low I think I'd just suck it up for the short term and pay it.

Can you take a home equity line of credit? I know next to nothing about those but I don't think you have to refinance to get one.

Refinancing to a higher rate is likely short sighted - it might help in the very short term with getting cash in hand, but you're going to be paying more monthly for the entire life of the loan.

[BlondeSpiders]

Thanks for your thoughts!

We did some more digging and can't seem to find a rate that's lower or comparable to our current 3.375%, so we're bagging the whole idea.

[marie]

Cash out rates are also slightly higher than regular refi's, so the rates you are seeing are probably even lower than what you would get.