Garner, NC · Member since 2021 · 45 posts · 33 votes
So I called the bank to do a cash out refi. For $150,000 mortgage on my primary. My payments will be $2000 a month with a 6.75 interest rate. I have all this equity & still can’t afford to have my money work for me in other investments. how do you manage this? In this type of market. I’m so frustrated. I know most of you are like it’s only $2000, but to me it’s a lot & can’t afford those types of payments.
A 30 year fixed rate loan of $150k at 6.75% has a payment of $973. In my area taxes and insurance might run another $350-500 for a total of maybe $1473 max not $2000.
So, did you get quoted a shorter term loan like a 15 or 20 year loan?
Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
3y
Hi @Nick Camizzi, your monthly payment seems higher than it should. A $150k loan amount with a rate of 6.75% for 30 years equates to a principal and interest payment of just $973. To my knowledge, property taxes in the Raleigh area are fairly low. Do you know how much your property taxes and home insurance premiums are?
Hi @Nick Camizzi, your monthly payment seems higher than it should. A $150k loan amount with a rate of 6.75% for 30 years equates to a principal and interest payment of just $973. To my knowledge, property taxes in the Raleigh area are fairly low. Do you know how much your property taxes and home insurance premiums are?
My taxes are about $3000 a year and my insurance is about $150 monthly. And I have a 740 score
Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
3y
@Nick Camizzi got it. Sounds like he was just giving you rough estimates (which were way too high) but actual numbers should come in about more than 25% cheaper.
How does an approx $1,400/mo payment fit into your goals? How much cash are you looking to pull out?
@Nick Camizzi got it. Sounds like he was just giving you rough estimates (which were way too high) but actual numbers should come in about more than 25% cheaper.
How does an approx $1,400/mo payment fit into your goals? How much cash are you looking to pull out?
Thank you for that, I can probably do $1400. I was thinking about taking out $150,000-$200,000
Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
3y
@Nick Camizzi do you own the home free and clear right now? Or will some of the those loan proceeds need to go towards paying off an existing mortgage?
have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.
The HELOC is 11% I’m not doing that
Look at your 'blended rate' before you make that decision. When I analyzed for my own situation a cash out on my home would result in an effective 7% rate but my blended HELOC rate is 5.5%. Obviously it is much more beneficial for me to go with the 10%+ HELOC because my actual blended rate is lower.
have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.
The HELOC is 11% I’m not doing that
The thing to consider is your opportunity cost. What do you plan to do with your $150,000 once you get it, because you'll be paying $1400/month having borrowed it all at once. If you just want access to your equity and will figure out where to invest it later, the HELOC allows for this. You only owe on what you have borrowed at that time.
If I see a property I want, I use it. Also the interest is simple interest only so its not so hard on your cashflow. I.E. if you need $50,000 to close quickly on a renovation opportunity, you can do so. The cost to you at 11% would be $458/month in interest only payments. You can pay back the loan principle when you have exit the project via Cash out refi or flip.
have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.
The HELOC is 11% I’m not doing that
Look at your 'blended rate' before you make that decision. When I analyzed for my own situation a cash out on my home would result in an effective 7% rate but my blended HELOC rate is 5.5%. Obviously it is much more beneficial for me to go with the 10%+ HELOC because my actual blended rate is lower.
good point.. HELOC allows you to keep your original low rate (like mine :) 3.5) instead of trading it up to a much higher current interest rate.
have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.
The HELOC is 11% I’m not doing that
That's a bit odd as my HELOC currently stands at 7.9%, but maybe your particular circumstances are much different.
In general, yes, HELOCS have higher rates than fixed mortgages, but the upside is that you have much more flexibility. You only borrow as much as you need and you can easily pay back when you have extra cash to reduce payments. Also, HELOCS tend to be "interest only", so your effective payment is lower because it doesn't include principal payments.
Real Estate Agent · Denver CO · Member since 2019 · 209 posts · 332 votes
3y
Trapped equity is a good problem to have.
I'd say it is solving a problem for you as it's keeping your monthly payments low and locking in a lower interest rate. Now it's probably not the best and highest use of it but that's where you need to get creative and figure something out. 6.75% are your borrowing costs...there has to be an investment or long distance market out there that can beat that.
I'd say it is solving a problem for you as it's keeping your monthly payments low and locking in a lower interest rate. Now it's probably not the best and highest use of it but that's where you need to get creative and figure something out. 6.75% are your borrowing costs...there has to be an investment or long distance market out there that can beat that.
Yes it is a good a problem, I’m just trying to figure out how to use it without screwing myself. My interest rate right now is a 2.99% so to go a 6.75 is killing me lol. I’m definitely gunna have to solve this problem & definitely get creative, but I’m a rookie & don’t know much yet. But I will figure it out eventually. I HAVE TO DO GET IN ON REAL ESTATE, better with help obviously then by myself
have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.
The HELOC is 11% I’m not doing that
The thing to consider is your opportunity cost. What do you plan to do with your $150,000 once you get it, because you'll be paying $1400/month having borrowed it all at once. If you just want access to your equity and will figure out where to invest it later, the HELOC allows for this. You only owe on what you have borrowed at that time.
If I see a property I want, I use it. Also the interest is simple interest only so its not so hard on your cashflow. I.E. if you need $50,000 to close quickly on a renovation opportunity, you can do so. The cost to you at 11% would be $458/month in interest only payments. You can pay back the loan principle when you have exit the project via Cash out refi or flip.
Thank you John, so it could be easier with a HELOC in some cases then huh? I’m still a little unfamiliar with it which makes it nerve racking. The book’s & podcast say HELOC but when I hear 11% interest I’m like omg lol.
Investor · Austin, TX · Member since 2019 · 9 posts · 3 votes
3y
I'd suggest considering broader market factors and deal details need to be considered along with financing options.
For a really good deal, the higher interest rate might be worth the risk if your returns are higher than interest expenses but it's crucial to do your due diligence and analysis before making this decision.
In mid-2021, I did a cash-out refi on my primary mortgage which decreased my mortgage rate and allowed me to take out ~$60,000 in equity for an off-market deal that was priced 20% lower than the going market rate. It sounds easy but the truth is that it took me a couple years of find this good of a deal and do not regret the wait.
If I found the same deal today would I take it? Probably not, interest rates are too high and property costs haven't really adjusted for it in Austin, TX yet.
Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
3y
@Nick Camizzi the others in this forum have nailed it. With the higher rate, comes more flexibility. Keep in mind that HELOCs are adjustable rates, and are determined by the US prime rate (currently 8.5% plus a margin - which is determined by your FICO, Loan to Value, DTI, and the banks appetite for that product). The margin is fixed for the life of the HELOC but the prime rate is adjustable (and has moved up 5.5% since the Fed started increasing). The good news is the Fed is likely done or close to done raising rates, at least for now, and many think they will start cutting rates by end of 2024 - it's all dependent on economic data.
It really comes down to what you plan to do with the cash out funds. If you plan on using those funds to pay cash or put a large down payment on a long term buy and hold property, the cash out refi likely makes more sense. If you plan to use the funds to fund renovation projects on more of a short-term basis, then the flexibility and interest only options with the HELOC probably make more sense.
have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.
The HELOC is 11% I’m not doing that
The thing to consider is your opportunity cost. What do you plan to do with your $150,000 once you get it, because you'll be paying $1400/month having borrowed it all at once. If you just want access to your equity and will figure out where to invest it later, the HELOC allows for this. You only owe on what you have borrowed at that time.
If I see a property I want, I use it. Also the interest is simple interest only so its not so hard on your cashflow. I.E. if you need $50,000 to close quickly on a renovation opportunity, you can do so. The cost to you at 11% would be $458/month in interest only payments. You can pay back the loan principle when you have exit the project via Cash out refi or flip.
Thank you John, so it could be easier with a HELOC in some cases then huh? I’m still a little unfamiliar with it which makes it nerve racking. The book’s & podcast say HELOC but when I hear 11% interest I’m like omg lol.
As other posters have indicated, those numbers are off - WWWAAAYYY off! The numbers you stated work out to a loan amount of $308,357.36 according to my financial calculator. At 80% LTV, your FMV would need to be $385,446.71. You'll want to revisit that with the lender.