Refi Offer Comparison? Cash-Out or Not?

10 Replies

I guess I'm cutting my teeth on my own place. I've been in an FHA for five years and having bought a foreclosure we have plenty of equity. After reviewing a few offers its clear that I can take 20K out and still have a monthly savings over my current P&I payment. I guess the question is: in refinancing to a new 30yr fixed are there any red flags or rookie mistakes I can look out for in comparing offers to refi? This is my first of many BP inquiries I'm sure ;)

Be sure to compare fees in addition to loan rates.  Some lenders provide a good rate, but jack up the fees to compensate.  A mortgage broker may not get you the best deal possible(since they have to be paid), but they should be able to get a good deal.

You may find that the paperwork burden is significantly more than it was when you got your original mortgage - but that is likely true no matter which lender you use. 

Part of the payment savings is reduced principal payments.  If you want to finish your loan in 25 years, just slightly increase your payments - it might still be smaller than your original payment.

I would refi if I could get rid of the MIP that comes with the FHA. No PMI with the new loan. Will your LTV be below 80%? The costs of refinancing are so high, I would scrutinize closely those costs vs the $20k. $4k in closing costs is 20%. No to mention pain and suffering of hat in hand to the bank or lender. If I could get a better rate and drop PMI/MIP I would probably go for it, but not specifically for the cash out. Base your decisions on the long-term merit, not the $20k @Chad Coates .  That $20k will follow you around for 30yrs.

More details:  I never plan to pay this place off.  My current mortgage balance is $153k; rolling in cost and pulling $20k out I'm looking at a new loan of $182k.  With that I will still pay $100 less per month.  

This is where I need to be told "good thinking" or "Chad, you're an idiot".  The $20k cash will put the lipstick on the pig here (cedar fence, new a/c units, brushed nickle door levers).  With those items addressed this place meet or exceed my comps selling for $275-300k.  That in theory would give me a possible equity check of $95k!?  With that I can throw down on my families (6 of us) next place and throw down on my first flip or B&H.  Thoughts?

Hey Chad, what is your current interest rate on your FHA loan and what kind of interest are you looking at if you get a new loan? The way I see it is that if you can take money out of your current property and still increase cash flow on that property plus on top of that use the equity you pulled out to purchase another investment property with great returns then yeah its a no brainer. You should do that!!

Its all about the numbers.  You have 20k in equity sitting there at X rate, if you can pull that out and make greater then X rate including closing costs on your new loan then its a WIN situation.

Current - 5.5. possibly going to 4.7 and dropping PMI. All of the $20 cash would go back into this place looking for a bigger equity check to play with in selling this place. @Alexandar A.

Chad, youre in a good situation my friend. It sounds like the $20 you would put back in the place is really just icing on the cake. Getting a cheaper rate, more cash flow and losing PMI would be enough for me to pull that trigger.

Thanks BP peeps! I'm feeling pretty good about this now.

I still don't get your intention. Are you making repairs so you can sell right away? Obviously it depends on the numbers but generally refinancing will have between a 2-4 year payback. If you sell within that payback it makes more sense to take a HELOC for repairs. Is it possible to get a new appraisal to be below 78% LTV to take off the PMI or is the only way to refinance? I'd look into that.

The other thing to consider is you are now restarting your amortization schedule at a 30 year term. Again it all goes back to how long you plan to hold the property.

My intention; sell this house next spring and walk away with enough cake to start taking action. I'd bump up the schedule but I'll have a senior in high school next year.

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