Home ReFi 2 steps back? Moving from a 15yr to 30yr/7-1...smart?

Question

I have 10 years left in my 15yr@3% mortgage. My home has $400k+ equity. My plan was to cash out 60k and move to a 30yr@3.75 loan. I will put the 60k into a mature whole life plan that is currently giving 6.5% on any money I deposit. (The whole life money is fully available immediately, at any time, for any reason and can be taken out tax free) I was also planning on getting a HELOC for short term financing deals or rehab on a brrrr. My monthly mortgage payment will drop, allowing an extra $600 month for cash flow/investment saving. If I do the ReFi I will be positioned to move quickly on a deal and will be earning safe interest on the cash in the meantime, but, I'm getting cold feet. The long term savings of my current mortgage over starting over again with a higher % is astounding ($130k). 10 years will happen quickly, the house will be paid off. It will take me 5 or 6 years to save 60k at my current rate, I could invest then... Thoughts?

Joel Johnson · Answer

I WOULD NEVER PULL MONEY OUT OF MY HOME AND PUT IT INTO WHOLE LIFE INSURANCE! Please, please, please sit down with an independent financial advisor before you do this. 6.5% on your money is not accurate.

Start with the end goal in mind. Do you want a paid-for house? If so, then don't do the refi. Do you want to take money out on your house to put into good investments and potentially earn a higher return? It's completely dependant on your goal whether or not I would do this. Personally, I'm already on a 30 year, don't plan on paying it off early, and am investing the rest in stocks, real estate, etc.

Don Spafford · Answer

Return on Equity is always 0%. If you can ever tap into that equity to invest, either heloc or refi, to invest in other high return assets such as real estate, then do it. Having hundreds of thousands locked into a property is doing nothing for you. Just don't spend it on boats and trucks, etc.

Dylan Vargas · Answer

@Jason Sebastian Welcome! The HELOC doesn't change your 15 year loan does it? If not that is the route I would go. With regard to equity as a funding source (for real estate deals) you can use hard money also and refi out after repositioned or what not. People get fixated on the interest of hard money but the ease and speed is special my opinion. The hard money lender would simply cross collateral some equity on your house. Make sense? Good luck and keep us posted.

Jason Sebastian · Answer

I suppose this is certainly an option, but wouldn't my after tax rate of return be about the same. A quick look at Vanguard's historical performance places the good funds around 9.5%. If I understand the numbers correctly, after tax return would be 6-7%. I would also have to worry about market fluctuation, it's likely the market will be down exactly when the real estate deals are available. My cash value dividend never dropped bellow 6% during the 2008 crash. I have some in the market, but only as a long term strategy. I don't think I like the idea of using it as a short term "bank" for real estate investment money. I am willing to be convinced otherwise and my rule of thumb numbers may certainly be wrong. Any feedback is appreciated.

BTW, the main crux of questions was about using personal residence equity as a funding source. What I do with the cash out money after the refi (if I refi) is less of a concern.

Jason Sebastian · Answer

I live in rural Idaho, people are flooding in from CA. Selling small homes there and building mansions on acreage here. I haven't met many that are investing with it though, which seems like the smarter play... at least they're buying assets, I guess. I mostly see atv's and boats though.

Luis Vaca · Answer

Lol yea that's what I want to do. House hack in a cheaper area (I'm currently in California), use 3-10% down on a primary and have a bunch leftover to play with. Big minus is I won't be close to my parents.

Good luck on your decision as well!

Jason Sebastian · Answer

Luis, I would sell in a second, do a house hack with the equity and hit the ground running. My wife on the other hand has plans to die in this house. I moved all the time growing up, her parents have multi-generational property and will never move. Our views have been shaped accordingly, she plans on being buried in the back yard. Good luck on selling your property.

Luis Vaca · Answer

I'm kind of on the same boat. I have 10 years left on a 15 year loan but I have equity where I can get 240-250k if I sell. I can also do a HELOC, but I'm leaning towards selling. It all depends on where you are in your life and what makes sense for your family.

Adam Fiore · Answer

@Jason Sebastian

You be better off putting it in the vanguard fund

Jason Sebastian · Answer

Thanks for the warning Joel, but that ship has sailed. As I stated, the policies are now mature, the expensive, possibly dumb, part is over. At this point, ALL money deposited is cash value and the dividend is is at 6.4% right now. I would be using this policy as a high interest bank account, not really an investment.

Is a paid off house my goal? It was, now I'm not so sure. Having a lot of my net worth sitting untouched, doing nothing for the rest of my life seems financially unwise.

Home ReFi 2 steps back? Moving from a 15yr to 30yr/7-1...smart?

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