Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Ok here's the scoop. Bought our home this last May and took out a $340,000 mortgage, 30 year fixed at 4.5%. I'm now being offered a 30 year fixed at 3.5% with closing costs of $4,221 and prepaids of $4,400. Seems like a no brainer on the refi given we will be here for 20 years if everything goes as planned. Yesterday we found out we may need a new roof which I am guessing will run $10k-$15k. We have the cash in the bank but I'm not comfortable tapping it as it would be 50% of our emergency fund. Would you guys do a cash out refi and up the loan to around $355-$360k or do a straight refi and then a home equity loan at 4.99% for 15 years with a goal of paying it off early? We have approximately $5k on credit cards with a 1.99% interest rate and no other debt. Income is $155,000 per year and we have saved very well for retirement. So, cash out refi at 3.5% or straight refi with a separate home equity loan at 4.99%? I would love to hear opinions! Thanks.
If the cash out really stays at 3.5% that would be a FANTASICALLY great rate for a 30 year fixed loan and it would be insane not to take maximum advantage of it.
The HELOC at 4.99% offers NO advantages. If you decide to accelerate your mortage payments you could shorten you mortgage but at 3.5% you really would be nuts to not hang on to that cheap money for as long as humanly possible!
This is really a no brainer IF THE RATES LINE UP with what you've laid out here.
I have no problem from an "philosophy of borrowing" standpoint to use a cash out refi to put on new roof -- that is a smart way to make the long term asset of the new roof be paid for with long term borrowing of a mortage that is secured by the value of the new roof.
Bought our home this last May and took out a $340,000 mortgage, 30 year fixed at 4.5%.
I'm now being offered a 30 year fixed at 3.5% with closing costs of $4,221 and prepaids of $4,400.
How much was paid in closing costs and prepaids to establish the existing mortgage?
Quote:
Yesterday we found out we may need a new roof which I am guessing will run $10k-$15k.
Yesterday? What has happened over the last six months?
And do get at least one FIRM estimate from a reputable roofer.
Start with confirming the extent of damage that is "showing up" so soon.
Quote:
We have the cash in the bank but I'm not comfortable tapping it
as it would be 50% of our emergency fund.
The question is how long it would take to replace that number
Home repairs, even pricey surprise ones should be done with cash.
Especially so when we have a reserve for that purpose on hand.
That's my dilemma. We paid $7,400 in closing costs and pre-plaids in May. Obviously some of that will be refunded back to us from the escrow account at closing which will offset the new pre-plaids but that's where the advice is needed. We've made 7 payments on this house but now have a need for more cash and an offer to lower our rate by 1 percentage point. Not an easy call but maybe it is?
I'm in the process of getting bids and assessments from multiple roofing companies. This stemmed from one small leak that I had fixed yesterday so I should back track and say that a new roof isn't necessarily inevitable. However, it is roughly 17 years into its useful life (a known fact at time of purchase) so it is approaching its life span. The roofer I had come out I had used before and is reputable but I am still seeking multiple opinions. He said to keep an eye out for more leaks. I'm just trying to stay ahead of any issues should the roof start spring leaks all over.
Your monthly savings between 4.5% and 3.5% on a $350K, 30-year loan is about $200. It will take you about 43 months to break even on $8621 in costs, before you actually start 'saving' $200 per month. Within 10-years, you can about pay for your REFI costs and a new $15K roof.
I'm no mortgage expert, but it seems like a very expensive refi for just a couple hundred in monthly savings. It will take you years to offset the high upfront closing costs.
If I were in your position, I would spend the money I had reserved for the closing costs (8K) and add a little from your emergency fund and fix the roof. Any monthly savings thereafter would be used to pay yourself back from your emergency fund.
In a year, if you still want to refi, you can consider a shorter term loan (i.e., a 15 or 20 year) as you recoup the closing costs MUCH faster, assuming you can afford the higher monthly payments. This is precisely what we did last year (refi-ed from a 30 year fixed at 4.375% to a 15 year fixed at 2.95%). We are accumulating equity so much faster now and save a considerable amount on interest.
EDIT: I made the assumption that you are paying your own closing costs, but I realized after posting that you could easily finance your closing costs by rolling it into your new loan. If you don't have the 8K in cash without dipping into your emergency savings, then what I posted above doesn't really apply to you. My mistake.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
