Cashout refi

13 Replies

Doing a cashout refi and not sure what to do. 

Would you take a interest rate of 4.125 and pay $1400 upfront in extra fees or take 4.75 and save the $1400.  Comes out to a $30 difference on a loan amount of $75,000. 30 year fixed rate.

Keep going back and forth but thinking that $1400 in my pocket is better way to go and more and pay $30 more a month....

Thanks
Nate

Time value of money...I'm taking the $1400 in my pocket.  That's 3 months of direct mail for me!

Originally posted by @Nate M.:

Doing a cashout refi and not sure what to do. 

Would you take a interest rate of 4.125 and pay $1400 upfront in extra fees or take 4.75 and save the $1400.  Comes out to a $30 difference on a loan amount of $75,000. 30 year fixed rate.

Keep going back and forth but thinking that $1400 in my pocket is better way to go and more and pay $30 more a month....

Thanks
Nate

 HI Nate,

It would seem that the spread or delta between cost and no cost is 1400 dollars or 5/8th's percent in rate AKA .625% to achieve the "no cost," option.

How do you decide what its worth? It depends on the person. As the prior comment mentioned to her its worth some advertising so she'd rate take no cost loan to lower her cash out flow for 3 months. This is probably because the ROI on her 3 months of advertising is more valuable to her than the 30 dollars more a month.

It all depends on what you can do with 1400 dollars more in your pocket today versus 30 dollars less a month in income/expense from a cash flow perspective.

From a balance sheet perspective the higher rate of 4.75% makes your equity pay down of your 30 year loan slower (less amortization).

What are you thoughts?

I don't know. I keep going back and forth. Closing on 4.125 is total $4000 in bank fees vs the 4.75 which is $2600.

Would like to have the lower rate but sucks paying that much in bank fees although more money back is better upfront so I dont know..  $30 a month is $30 a month which does add up over the year.

Is the mortgage for about 80k?  Those closing cost seems awfully high for an 80k loan.  But to answer your question if you pay the extra $1400 to get the lower rate your getting a 25% return on your money.

Do you think you'll hold the property for 30 years? The lower interest rate only matters over the long haul IMHO. 

Originally posted by @Pat Martin:

Is the mortgage for about 80k?  Those closing cost seems awfully high for an 80k loan.  But to answer your question if you pay the extra $1400 to get the lower rate your getting a 25% return on your money.

yes its a cashout refi which is why I guess its alot to close. + title work again ($1100) . Loan is only $75,000. Loan Origination fee is $900+ appraisal $500 and + points $1500 and some other minor fees. 

4.125 Cost is $4000

4.75 Cost is $ 2600

how did you calculate the 25% return on money?

Did the math and If I keep the property 4.8 years is the break even point. I should have it that long.....

THanks

$360 Per year saved / $1400 invested = 25.7%

@Pat Martin has the correct answer--or question. It is 25% gauranteed ROI for no effort. If that is good for you, then pay the extra $1400. If you can make that money work harder then don't.

I'd be torn myself.  I'd like to do better than 25% but it is too easy a return to ignore. 

I never even looked at it like that.... That is a very good point. Also I can write off all the closing fees.  My gut feeling was to take the lower interest rate from the very beginning.  Still blows shelling out $4000 in bank fees for a cash out refi on a $75k mortgage. 

Thanks for everyones help

Cash is king. I do whatever I can to preserve every penny of my reserves that I can. That 1,400 may not sound like much. But it adds up pretty quick.  At 4.7%, thats still an incredible rate for an investment property.   Keep the 1,400. You can never have enough cash!!!!!

$1400 can do some things here and now. $30/month is Starbucks once or twice a week!

After seeing what happened to lending post 2008, I would finance whatever you can at the best rate with the least out of pocket expense. Cash in your control (pocket) is King... ALWAYS!

What happened to lending post back in 2008? 

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