Does it make sense to cash out refi our low mortgage and bank the money?

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suesullivan's picture
suesullivan
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Does it make sense to cash out refi our low mortgage and bank the money?

From what I'm reading, these mortgage interest rates may not last much longer.

We've been very conservative with our debt, and have only a $66k mortgage on a house in a reasonably stable market that's worth upwards of $200, at least for now.

It's occuring to me that it might be prudent to refinance our mortgage (a bit over 6 percent interest, iirc) and pull out $20-$40k , which would increase our monthly payment $35 to $135, at the current interest rate.

Assuming we are fiscally responsible and leave this equity untouched, as a hedge against job loss, does this make sense? I would actually leave it in the same credit union that holds our mortgage, rather than buying PMs with it. (I have already pulled some retirement money out for PM purchases and I suppose we could continue drawing down those accounts for living expenses if DH's job disappeared and we can't find other work.)

We're a family of four with a low, but steady income stream right now, and we are operating slightly in the red as of late, in large part because of stockpiling and self-sufficiency expenditures, but we're planning to track expenses more closely and cut back remaining discretionary spending. Barring catastrophes (as though that were possible to do!) we probably don't need that money now, but it's hard to say what the future will bring.

 Does becoming somewhat more indebted make sense right now, if all we'd be planning to use the money for was to get through potential income loss?

 Any thoughts would be appreciated....

Sue

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Re: Does it make sense to cash out refi our low mortgage ...

You didn't say how much time is left on your current mortgage, but if your current mortgage has a rate higher than 6%, and you intend to stay in the house for 5 years, it would probably make sense to re-fi for a lower rate anyway.  However, you might find banks are leery or unwilling to do any cash out, especially if there is any hint that you are currently financially duressed.  You say"we are operating slightly in the red".  Would that be obvious to the bank, i.e., are you running up CCs or other credit?   If possible, I'd do the re-fi if for no other reason than reduced interest/lower payment. And it sounds like it might give you some more breathing room anyway. 

suesullivan's picture
suesullivan
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Re: Does it make sense to cash out refi our low mortgage ...

No I imagine we look fine to the credit union, we set aside a chunk of equity from our previous home sale as savings, and have spent that down by half, but we still have $16k in the  bank and we don't carry any other debt, such as ccs. the mortgage is only  about 16 months old.

We would still be able to pay off current or larger mortgage if necessary by liquidating our retirement accounts, which are in cash.

Thanks for you response,

Sue

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Ragnar_Danneskjold
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Re: Does it make sense to cash out refi our low mortgage ...

I refinanced last year, just a little later than you...I got mine at 5.5%.  I had 20 left on a 30 year, and refinanced to 15...the difference in payment compared to my old mortgage was minimal.  I didn't do any cash out, but the broker told me they wouldn't do it anyway, even though I have plenty of equity and a 799 FICO.   I really expected rates to go higher already with all the crap going on, but still happy to have gotten mine done when I did. 

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Re: Does it make sense to cash out refi our low mortgage ...

Why look for financial advice on this website when you can invest in a magic 8-ball?  Mr. Martenson just warned everybody (and I paraphrase) to be suspcious of any advice people give you (including his) and not to override your own common sense.

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Gadfly
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Re: Does it make sense to cash out refi our low mortgage ...

Follow-up question:

 

  If someone advises you to be leery of advice, should you be leery of that advice itself?  If so, where does that lead you?

suesullivan's picture
suesullivan
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Re: Does it make sense to cash out refi our low mortgage ...

I'm interested to hear Ragnar, that you couldn't cashout. That may answer my question entirely for me. I'll check with my credit union today.

Gadfly, I find asking useful. Sometime I get information I didn't have. Sometimes I just notice which responses make sense to me and it's a way of confirming which direction i really wanted to go in, sorting out worries and fears from deeper and truer drivers.

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VictoriaPandora
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Re: Does it make sense to cash out refi our low mortgage ...

Ragnar,

           How much did you have to pay to do this in terms of fees? Is fifteen hundred dollars resonable for this sort of paperwork?

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LogansRun
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Re: Does it make sense to cash out refi our low mortgage ...
VictoriaPandora wrote:

Ragnar,

           How much did you have to pay to do this in terms of fees? Is fifteen hundred dollars resonable for this sort of paperwork?

Victoria,

If you're interested in info please contact me as my wife is in the industry and has been for many, many years.  She can answer any questions with no strings attached.  She's really the best I've ever seen in the industry (yes I'm biased but I'm not the only one that thinks this).  Again, she's more than happy to do this for anyone with ZERO obligation to use her or her organization.  If you don't feel comfortable, understand.  Good luck!

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Ragnar_Danneskjold
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Re: Does it make sense to cash out refi our low mortgage ...
VictoriaPandora wrote:

Is fifteen hundred dollars resonable for this sort of paperwork?

$1500 is pretty close to what I paid. 

suesullivan's picture
suesullivan
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Re: Does it make sense to cash out refi our low mortgage ...

I was quoted $1,500 from my credit union for a rate adjustment. It didn't pencil out for us....

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RNcarl
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Re: Does it make sense to cash out refi our low mortgage ...
suesullivan wrote:

I was quoted $1,500 from my credit union for a rate adjustment. It didn't pencil out for us....

 

My guess is the $1500 is just "buying down" the rate.

I also assume you have watched the crash course. I see by 150 posts Sue, you have been around a while.

Why refi anyway? I would only do it if it would shorten the term. Try and get to ZERO debt asap. I know folks here talk about hyper-inflation and all, and keeping debt because debt at todays dollars will be a discount in tomorrows dollars, but unless you have the stomach for the risk in buying PM's and betting they will go up (enough) and you can sell them to cover debts.... I would think the most simple approach would be to just eliminate as much debt as possible.

Think of this, when fuel goes back up to the $5-$6 / gallon range (or more) and your electric bill doubles (again) and taxes double and food doubles..... how far do you think $40-$50K will go?

Will your wages double as quickly as your fixed expenses will?

 

If you have no debt except for real estate taxes and other daily living expenses wouldn't that be easier to manage than trying to juggle debt AND daily living expenses?

 

OK folks, help me understand, OK? Why carry debt unless you absolutely HAVE to?

 

FWIW - C.

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VictoriaPandora
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Re: Does it make sense to cash out refi our low mortgage ...

That would be awesome. I realise  a refi makes sense, (as much as anything does) but we really are looking at fifteen hundred and probably more in fees. A new appraisal etc.

You get halfway in and there are other hidden costs. It is truly frustrating.

We bought the most simple small house in a place we didn’t even want to live. The idea of paying almost a hundred and fifty thousand for it after the terms of the loan seems ridiculous. It's a $45,000 house! Nothing extravagant believe me.

However, the monthly mortgage was cheaper than rent in this area, and we could keep our pets. That’s the main reason we opted for “ownership.” What a joke.

I’d be grateful for any advise, even if I am not supposed to take it, haha.

 

suesullivan's picture
suesullivan
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Posts: 305
Re: Does it make sense to cash out refi our low mortgage ...
RNcarl wrote:

 I know folks here talk about hyper-inflation and all, and keeping debt because debt at todays dollars will be a discount in tomorrows dollars, but unless you have the stomach for the risk in buying PM's and betting they will go up (enough) and you can sell them to cover debts.... I would think the most simple approach would be to just eliminate as much debt as possible.

Think of this, when fuel goes back up to the $5-$6 / gallon range (or more) and your electric bill doubles (again) and taxes double and food doubles..... how far do you think $40-$50K will go?

Carl, yes, that's exactly why I orginally asked about refi-ing -- that idea that interest rates will be rising and and inflation is somewhere on the horizon and we won't have access to cheap borrowing again. But ultimately I couldn't see increasing our indebtedness either.

As for paying off the loan entirely, we could do that in a year, by liquidating PMs and another withdrawal from our IRA. We'd still be left with $2,000 a year in property taxes, but it would save us $435 a month, which is nothing to sneeze at. I hesitate because I want more land than we have and I like the idea of holding on to some cash/PMs that we might use to buy some acreage, but I honestly don't know that will come to pass....

Victoria, I wish I had good advice for you to not take! Perhaps someone else will...

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RNcarl
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Re: Does it make sense to cash out refi our low mortgage ...

Sue,

Most of us who haven't lived extremely beyond our means are mostly in the same position. Meaning, We have some equity left in our property but it isn't a "haven" for weathering any storm. It was a good location for the status quo but now....

I live in a large city (by New England standards) I would guess it's more like a medium to smaller city as compared to the rest of the country. One thing I have found living in the city is, how many "services" the city dwellers become accustomed to having. The residents here rake spring lawn debris to the curb and the city comes along and picks it up and takes it to a city-wide compost location. In the fall, the same ritual occurs. Now, last winter in December we had a terrible ice storm and it left quite a wake of destroyed trees.Dutifully, all the residents in my neighborhood raked their storm debris and normal spring clean up to the curb.... But this year, no city pick-up. They are waiting for state and federal money to be used to pay for the clean-up. Now, the state says because of the bad budget short-fall, they most likely won't be able to pony up their share of the money for the storm clean-up. Yet, everyone keeps piling up the brush by the curb.... I am waiting to see what happens. There was a recent article in the local newspaper that complained the the city pools would not open this year because of the city budget cuts. My gosh! I guess, it really hasn't sunk in that we are in a world of hurt with the economy.

So, do we pay down debt and mortgage and stay put, or do we try and unload our home where our children are growing up and move? Moving takes quite a bit of energy and even more emotional capital to accomplish.

 

So, with these stories, I understand that there is more than "just a refi" going on. It would be nice if this mess came with a play book wouldn't it?

FWIW - C.

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