Mortgage refinancing--cash out and costs

[maize]

We have been paying down our mortgage aggressively for years, at the expense of savings. We now find ourselves needing a new vehicle (the 20 year old van is no longer either reliable or safe) plus some home repairs. I'm thinking of doing a cash-out refinance in order to pay for these things.

 

We would be looking at a fifteen year or even ten year loan, with the total loan value not more than 50,000. Any tips or experience? I peeked at rates on a 15 year fixed mortgage and our bank is quoting 2.78; I think our current (30 year) notes is about 3.75.

 

I know there are usually fees associated with refinancing, do those depend on the loan value? Ballpark figure of what if costs if you have done this? Other things I should be considering?

Edited July 6, 2016 by maize

[Scarlett]

Don't do it.

[maize]

Don't do it.

 

Why?

 

We're going to have to take on some debt one way or another, is there a particular reason not to fold it into the mortgage? 

 

I'm not driving six kids around in an unsafe vehicle, and while I'll happily buy used it needs to be a newer model than what we have and in a full size van that means $$$.

Edited July 6, 2016 by maize

[maize]

If you take out a car loan, and default, you lose the car.

If you take out a home equity loan, and default, you lose your home.

 

If you take out a home equity loan (or refinance and cash-out) to buy a car, and default, you lose the house but at least you could live in the car.

 

Don't do it.

 

We're not going to default, a $50,000 mortgage is not an unreasonable burden.

 

I'm not a fan of debt (hence the aggressive paying down of the mortgage we have) but I'm also not afraid of reasonable debt when necessary.

[Kari C in SC]

A new car loan is only around 2%. Better deal to just get a car loan.

[Anne]

I agree you need a safe car for your kids - I also agree with the others that you're better off to get a straight car loan. It will almost certainly be cheaper. And if Heaven Forbid, something terrible should happen that would prevent you from making the payments, you would lose only the car and not jeopardize your house.

 

Anne

[purplejackmama]

I agree you need a safe car for your kids - I also agree with the others that you're better off to get a straight car loan. It will almost certainly be cheaper. And if Heaven Forbid, something terrible should happen that would prevent you from making the payments, you would lose only the car and not jeopardize your house.

 

Anne

I agree. I never imagined the financial nightmares we would have found ourselves in. Things happen. Jobs go away. Savings dries up fast. When you lose your home it's devastating.

[Arcadia]

I know there are usually fees associated with refinancing, do those depend on the loan value? Ballpark figure of what if costs if you have done this? Other things I should be considering?

The fees does depend on loan value but not by much. The title fee was kind of fixed and the refinance cost was bank dependent and negotiable. We paid about $1k eight years ago but we went from 7.25% (home equity loan), 6.75% (mortgage) to 2.875% (5/1 ARM loan) so it was a huge savings in interest payments.

 

There was interest free car loans during the usual 4th of July sale. Private car loans interest rates aren't high either. Might make more sense and be cheaper to take out a car loan then to refinance.

[Scarlett]

Why?

 

We're going to have to take on some debt one way or another, is there a particular reason not to fold it into the mortgage?

 

I'm not driving six kids around in an unsafe vehicle, and while I'll happily buy used it needs to be a newer model than what we have and in a full size van that means $$$.

Just get q car loan. If the very worst terrible thing happens and you can't make the payment, you just lose a car, not your home.

 

I have no mortgage and I need a new car in the next few years. No matter what I won't be paying for a car via a mortgage.

[emmaluv+2more]

I wouldn't do it either, but since that isn't what you asked I think you could expect a couple thousand in fees/closing costs (I'm no expert).  There are supposed no cost refi's, but they usually require a higher interest rate and you might not qualify with such a small loan amount.

 

How much time is left on your currant mortgage?  What would the monthly payment changes be?  How much do you plan to spend on a new vehicle?  Are you planning to move before the new mortgage is paid off?  All of that and more should be considered.

 

A car loan is paid off in 4-5 years, whereas adding it to your mortgage would increase the pay off to 10-15 years. 

[StaceyinLA]

Well we are doing a cash out refi right now. We owe well under 50% of the value of our home, and are borrowing to do some improvements we've wanted to do. We will be barely over 50% of the value after the refi, and our rate is right at 3%.

 

The costs are around $2300 (not including our prepaids, but we pay those anyway and will be credited for the escrow balances in the payoff). We are taking out around $30K and our note is not going to change at all. We are increasing our number of years we owe from 12 back to 15 (though dh will be getting some large bonuses over the next few years and we plan to pay it all off within about 5 years).

 

If you could afford to have a car payment I might do that only because the rates are low on those, and you won't have costs associated with doing the refi.

 

However, if the rate on your current mortgage is a good bit higher than what you can get now, I might go ahead with the refi and do cash out because you'd likely save enough to make it worth your while, if not compensate for a good portion of the cost of the vehicle.

 

Why I wouldn't stress about having the mortgage; if something bad enough happened to put your mortgage in jeopardy, you'd sell anyway. If you only owe 1/2 of the value, you won't have issues getting the house sold and pocketing the difference. It's not like you're mortgaging your property up to 90% of the value or something. I just don't know that I'd be concerned about that (well, I am obviously not since we are doing a cash out refi). ;-p

Edited July 7, 2016 by StaceyinLA

[maize]

A new car loan is only around 2%. Better deal to just get a car loan.

 

The best rates on car loans are generally available only for new cars, we are hoping to go used.

[NicksMama-Zack's Mama Too]

The best rates on car loans are generally available only for new cars, we are hoping to go used.

I would think the closing costs would nullify any savings in having a cheaper interest rate. I could be wrong.

[SereneHome]

No one is going to foreclose on you if you default on HELOC. 

Interest paid on HELOC is tax deductible vs car loan interest that is not

Yes, there will be a few thousand dollars in closing costs (no matter what the lender tells you - there are ALWAYS closing costs) but you can roll them into the loan as well.  The difference in pmt and accumulated interest will be very insignificant.

 

And don't be afraid of debt - using leverage /OPM is not such a bad thing.

[maize]

I do appreciate the varied perspectives. 

 

 

[StaceyinLA]

I would think the closing costs would nullify any savings in having a cheaper interest rate. I could be wrong.

This would definitely depend on the difference in the rates.

[SparklyUnicorn]

You might get a better rate with a credit union.  Ours currently offers. 1.99%. 

The MAJORLY sucky thing I think with these types of deals are the fees. 

[emmaluv+2more]

No one is going to foreclose on you if you default on HELOC. 

Interest paid on HELOC is tax deductible vs car loan interest that is not

Yes, there will be a few thousand dollars in closing costs (no matter what the lender tells you - there are ALWAYS closing costs) but you can roll them into the loan as well.  The difference in pmt and accumulated interest will be very insignificant.

 

And don't be afraid of debt - using leverage /OPM is not such a bad thing.

 

Correct me if I'm wrong, but she's not talking about a HELOC.  She's looking to get cash out on a mortgage refinance, so default could put her at risk for foreclosure.  I don't think she's worried about that though.

 

I would take cash out for home improvements simply because that helps the resale value of the home.  I would not take cash out to purchase a car, for several reasons, unless I just had no other options.

[kitten18]

The best rates on car loans are generally available only for new cars, we are hoping to go used.

I don't think taking out some home equity is necessarily a terrible idea.

 

But, we took out a loan for a used car (through our bank) a couple years ago and the rate was about 3.25%.

Edited July 7, 2016 by kitten18

[SereneHome]

Correct me if I'm wrong, but she's not talking about a HELOC.  She's looking to get cash out on a mortgage refinance, so default could put her at risk for foreclosure.  I don't think she's worried about that though.

 

I would take cash out for home improvements simply because that helps the resale value of the home.  I would not take cash out to purchase a car, for several reasons, unless I just had no other options.

 

Yes, I think you are right.

 

Then I would suggest HELOC instead of refinancing. 

[OneStepAtATime]

1.  How much time left do you have on your current 30 mortgage?  

 

2.  Have you shopped around for a dealership that will finance a used vehicle?  Have you inquired about a car loan at your bank? (We were offered financing for our used van through a local dealership and their interest rate wasn't bad.  We had a better interest rate through our bank, however, so we went with the bank.).

 

3.  Have you crunched the rough numbers on how much interest plus fees you might be paying for a van over a 15 year period instead of the normal 2-5 year car loan?  Use an amortization table to punch in some numbers based on current rates you can find on the internet.  It would be a rough estimate obviously but might give you some idea of how much more you might end up paying. 

[maize]

I've done a HELOC before, I can look into that. The interest rate was higher than mortgage rates but loan initiation fees were quite low.

 

I guess I find the idea of just one loan to work with appealing. Total home value is at least $150,000, so if we did a $50,000 mortgage that would be a low loan-to-value ratio. We really wouldn't be at risk of default because as someone pointed out upthread worst case scenario we would end up selling the house. But really we could never rent for what our mortgage payment would be.

[maize]

1.  How much time left do you have on your current 30 mortgage?  

 

2.  Have you shopped around for a dealership that will finance a used vehicle?  Have you inquired about a car loan at your bank? (We were offered financing for our used van through a local dealership and their interest rate wasn't bad.  We had a better interest rate through our bank, however, so we went with the bank.).

 

3.  Have you crunched the rough numbers on how much interest plus fees you might be paying for a van over a 15 year period instead of the normal 2-5 year car loan?  Use an amortization table to punch in some numbers based on current rates you can find on the internet.  It would be a rough estimate obviously but might give you some idea of how much more you might end up paying. 

 

 

We are within a few years of paying it off (have been paying extra principal all along). I'd love to just pay it off but there are other financial needs right now.

 

We have looked into financing through a dealership or our bank, that is definitely on the table.

 

Haven't really looked at amortization, but we've never yet taken the entire loan length to pay off a loan.

Edited July 7, 2016 by maize

[vonfirmath]

I wouldn't do it either, but since that isn't what you asked I think you could expect a couple thousand in fees/closing costs (I'm no expert).  There are supposed no cost refi's, but they usually require a higher interest rate and you might not qualify with such a small loan amount.

 

How much time is left on your currant mortgage?  What would the monthly payment changes be?  How much do you plan to spend on a new vehicle?  Are you planning to move before the new mortgage is paid off?  All of that and more should be considered.

 

A car loan is paid off in 4-5 years, whereas adding it to your mortgage would increase the pay off to 10-15 years. 

 

I just did a no-cash out refinance and our fees were $4500. But that included pre-loading the escrow account with property taxes for 8 months (then got refunded later with money in the existing escrow)

 

As for crunching the number, I found a VERY useful site that helped me compare different refinance terms (including being able to forecast what extra payments would do at various points):

 

http://www.mortgage-x.com/calculators/extra_payments.asp#s

 

It was one of the reasons we decided to change our 30 year loan (That we had only paid 4 years on) to a 20 year loan.  Putting it back to a 30 year loan, even at the lower interest rate, caused the total interest to be higher than I was comfortable signing up for. And no reasonable extra payments I could forecast made much of a difference on that.

 

Though I realized later partly this is because the second loan (We refinanced two loans into one at a local bank) was for only 10 years total, albeit at a much higher interest rate.

 

Edited July 7, 2016 by vonfirmath

[Ausmumof3]

Why?

 

We're going to have to take on some debt one way or another, is there a particular reason not to fold it into the mortgage?

 

I'm not driving six kids around in an unsafe vehicle, and while I'll happily buy used it needs to be a newer model than what we have and in a full size van that means $$$.

We have done it. There are a couple of things to be mindful of. One is the term of a home loan is often 20-25 years. You need to be disciplined to pay your car off in the same time frame as a car loan. This shouldn't be a problem given you've paid down the mortgage extra in the past.

 

If you need to claim the repayments on tax it's much harder. At the time we did it we did it because home loan interest rates were so much later but now with dealer or new vehicles the car loan rates are often really low.

[mamakelly]

We just did it. We owed less than 50% on our homes value. We took out 30,000 cash out refi, and refinanced. Our loan went back to 30 years, (from 26 years), we got a lower interest rate and our payment dropped. It cost us about 5,000 to do the loan, and a large part of that went into our escrow account. We were able to do much of the work ourselves, and squeaked every penny out of that money. I'm very glad we did it.