Author Topic: cash out refinance for home repairs?  (Read 1222 times)

dadbod

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cash out refinance for home repairs?
« on: October 30, 2020, 05:31:51 AM »
We're in the middle of a cash out refinance on our home and my husband is pushing hard for us to increase the amount we are taking in order to pay for a new roof.  The original plan was to consolidate an interest only home equity line of credit that we opened when we bought the home (80-10-10) with our existing primary mortgage.  Because of the way we used the heloc since opening it, the refinance is considered a cash out (wish I had known that).  Still new interest rate will be 2.625 for a 30 year fixed.

We'll need a new roof eventually (say in the next 5 years - we've been patching small leaks here and there for years) and the interest rate is good.  We can go up to 60% LTV on the same terms (we have a lot of equity) and take an extra 25k, which would increase our payment by about $100/month, but our new payment would still be 100s less than our existing combined payments. 

We are already taking about 12k out due to a quirk of our escrow account - we have to pay the full taxes and insurance to the new mortgage company upfront because the due dates are so soon but our current mortgage holder hasn't paid them yet.  Our current mortgage company will then refund us the existing escrow account (part of the 12k referenced above).  We intend to use that for a new-ish car next March.

I'm having a hard time with this.  Yes, the arguments he makes are good - low interest, improve house, necessary update eventually, new payment still less than existing payments - but I hate the thought of taking on more debt.  We make good money, real good money now, but we are constantly struggling with it.  We spend it like a firehose at times. If it matters we can easily afford the higher mortgage payment according to the income/debt ratios; we just have spending problems elsewhere.

I don't know if I even have a question here.  Maybe does anyone think increasing the mortgage 25k is a good idea?   Knowing my audience I suspect I posted on this website for a reason, but if a lot of people say you'd be a fool for not taking money at 2.625% I could be persuaded.  I mostly use this forum for help in resisting / delaying spending.  So many inspiring people!  If we save our money we could pay for a new roof with cash in a year - if we even need it then.

Money is hard, y'all!





cool7hand

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Re: cash out refinance for home repairs?
« Reply #1 on: October 30, 2020, 06:05:32 AM »
To help, I think we'd need to know a little more about your financial picture. There's no one way to FIRE. What's your income? expenses? total assets and liabilities?

Playing with Fire UK

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Re: cash out refinance for home repairs?
« Reply #2 on: October 30, 2020, 06:24:59 AM »
There are two questions: should you take the most out of your house at 2.65% and should you spend $25k on a roof and ~$12k on a car.

If you can save money from salary, but have a tendency to splurge cash like it's coming from a fire hose then you shouldn't be giving yourself the problem of managing more money until you have your spending under control.

It isn't your question, but you need to figure out your spending and get a grip on that. You are right, money is hard, but the time and effort you spend on tracking and moderating spending will pay you back over and over.

Malcat

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Re: cash out refinance for home repairs?
« Reply #3 on: October 30, 2020, 06:40:26 AM »
No, you should absolutely not use your house as a bank machine if you have a spending problem.

If you are making good money and can't afford to save enough to maintain your own house, that is a disaster.

norajean

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Re: cash out refinance for home repairs?
« Reply #4 on: October 30, 2020, 06:53:59 AM »
Forget the HELOC, just refinance conventional 30 year. You will get a better rate.  Start saving for the roof and fix it when you have enough saved.

dadbod

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Re: cash out refinance for home repairs?
« Reply #5 on: October 30, 2020, 07:59:45 AM »
To help, I think we'd need to know a little more about your financial picture. There's no one way to FIRE. What's your income? expenses? total assets and liabilities?

Age: early 40s.
Joint AGI each of the last four years is ~$239k (after business expenses and 401k), gross is over 300k
Joint Assets 1.25M (500k invested, 750k house), debts 450k (mortgage-related 400k, student loans 50k). 
Net worth ~800k (excluding house ~450k)
Spending . . . face punches are hard:  2019: averaged 12861/month; 2020 to date: averaged 8498/month.  tracked religiously via Mint and tried to decrease spending this year, successfully I might add!  But covid makes it hard to compare.

Hoping to fire in 2032 based mostly on 401k savings and Roth ladder via backdoor contributions at work.

There are two questions: should you take the most out of your house at 2.65% and should you spend $25k on a roof and ~$12k on a car.

If you can save money from salary, but have a tendency to splurge cash like it's coming from a fire hose then you shouldn't be giving yourself the problem of managing more money until you have your spending under control.

It isn't your question, but you need to figure out your spending and get a grip on that. You are right, money is hard, but the time and effort you spend on tracking and moderating spending will pay you back over and over.

Honestly, I have no idea how much a new roof costs.  Husband just wants to take the max we can take and figure it out later.  I've been tracking our spending since Jan 1 2019 and it is depressing.  We have a toddler and childcare is expensive, but we also have spending problems elsewhere, mostly but not only house-related.  Tracking spending is doable.  Moderating it has been a beast.

Playing with Fire UK

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Re: cash out refinance for home repairs?
« Reply #6 on: October 30, 2020, 08:10:19 AM »
Honestly, I have no idea how much a new roof costs.  Husband just wants to take the max we can take and figure it out later.  I've been tracking our spending since Jan 1 2019 and it is depressing.  We have a toddler and childcare is expensive, but we also have spending problems elsewhere, mostly but not only house-related.  Tracking spending is doable.  Moderating it has been a beast.

Nooooooooo. Not until the spending is under control. And if the spending doesn't get under control then that means never.

The cut from $13k to $8.5k a month is a great start, Covid or no Covid, but that is still a vast amount of spending. It's so much spending you could easily spend an extra $25k in the next six months and have no idea where it went. This is not a position to be taking money out of the house.

cool7hand

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Re: cash out refinance for home repairs?
« Reply #7 on: October 30, 2020, 09:08:18 AM »
Forgive me, but lack of granularity and the internal inconsistencies in your summary of your financial picture strongly suggest that you have not done the hard work necessary to understand your income and expenses, your assets and liabilities, and a meaningful plan to FIRE. You shouldn't borrow money until you understand whether you need to borrow money. You shouldn't need to borrow money unless there is an emergency. If you don't understand your spending, you don't know if you have an emergency. How about truly analyzing your monthly cash flow from all of 2019's data?

charis

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Re: cash out refinance for home repairs?
« Reply #8 on: October 30, 2020, 10:18:12 AM »
Forget the HELOC, just refinance conventional 30 year. You will get a better rate.  Start saving for the roof and fix it when you have enough saved.

This. Refinance for a better rate, no cash out. Save up for the roof.  One of the few reasons someone in this forum would encourage you to get cash out is if you were going to invest the cash.  You aren't. The reason your husband wants the cash now is because he doesn't want to/think you guys can save up for it. You'd be lucky to even have that money still in 5 years.

I'm doing a 30 year cash out refi right now. I have already scheduled an auto deduction to invest the $ we will be saving on the reduced monthly payment so we won't even see a difference.

Cranky

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Re: cash out refinance for home repairs?
« Reply #9 on: October 30, 2020, 04:20:20 PM »
You make that much money and you canít pay cash for a $15k roof???

seemsright

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Re: cash out refinance for home repairs?
« Reply #10 on: October 30, 2020, 04:48:25 PM »
No. A roof is maintenance.

You have a spending problem.

I suggest selling and renting. Owning a house is expensive and if you cannot afford a roof you cannot afford the house. 

Money is not hard. Money is a tool to get to the life you want.

dadbod

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Re: cash out refinance for home repairs?
« Reply #11 on: October 31, 2020, 04:18:30 AM »
So what I'm hearing is that y'all think that it probably isn't the best idea to increase the cash out amount to pay for the roof.  Thanks!

cool7hand

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Re: cash out refinance for home repairs?
« Reply #12 on: October 31, 2020, 04:30:50 AM »
So what I'm hearing is that y'all think that it probably isn't the best idea to increase the cash out amount to pay for the roof.  Thanks!

What we are saying is a lot more nuanced. You might think about why you do not want to better understand your financial position and develop some different behaviors and goals.

Malcat

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Re: cash out refinance for home repairs?
« Reply #13 on: October 31, 2020, 05:58:08 AM »
So what I'm hearing is that y'all think that it probably isn't the best idea to increase the cash out amount to pay for the roof.  Thanks!

Yes, we're saying it's an absolutely terrible idea.

If you're not ready to talk about that in more detail, that's your right, but you are on a financial independence forum talking about your very troubling spending problem and asking if you should cash in on the equity of your home because you can't bring yourself to save enough of your large paycheque to cover basic maintenance on your house.

That's kind of like going to a temperance forum and asking if you should start injecting your oxy instead of snorting it. It's not just concerning to the people here, it's shocking.

Let us know when you're ready to talk about it if you ever get there.

Queen Frugal

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Re: cash out refinance for home repairs?
« Reply #14 on: October 31, 2020, 10:22:53 AM »
So what I'm hearing is that y'all think that it probably isn't the best idea to increase the cash out amount to pay for the roof.  Thanks!

That's kind of like going to a temperance forum and asking if you should start injecting your oxy instead of snorting it. It's not just concerning to the people here, it's shocking.


Lol you really have a way with words Malcat!

SwordGuy

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Re: cash out refinance for home repairs?
« Reply #15 on: October 31, 2020, 02:16:34 PM »
I'll be blunt.

If you can't afford to fix your roof on your income without borrowing money, you have a horrible spending problem.

If you're thinking of getting a newer car while your current ones are still running, but you can't afford to fix your roof, that should be your clue your family's concept of "financial priorities" is badly screwed up.

Malcat

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Re: cash out refinance for home repairs?
« Reply #16 on: October 31, 2020, 03:05:34 PM »
So what I'm hearing is that y'all think that it probably isn't the best idea to increase the cash out amount to pay for the roof.  Thanks!

That's kind of like going to a temperance forum and asking if you should start injecting your oxy instead of snorting it. It's not just concerning to the people here, it's shocking.


Lol you really have a way with words Malcat!

I'm an unsubtle communicator, that's for certain.

ctuser1

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Re: cash out refinance for home repairs?
« Reply #17 on: October 31, 2020, 03:21:13 PM »
We'll need a new roof eventually (say in the next 5 years - we've been patching small leaks here and there for years) and the interest rate is good.

This part rings alarm bells to me.

We just replaced our 25 year old roof this year. There were no visible leaks. However, when the got the top layer out, I could clearly see water damage to the underlying plywood below the shingles. We had to replace a few of the plywood boards for this reason.

If you have been patching leaks for a few years, then I would be worried about water damage to the structure at this point.

Also, how much does a roof cost? I live in a 1280 sq. ft house, in a very expensive state (= expensive contractors) and I got my roof done for $6300. Are you living in a very large house? If so, that could be a part of your problems.

lhamo

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Re: cash out refinance for home repairs?
« Reply #18 on: October 31, 2020, 03:48:13 PM »
We'll need a new roof eventually (say in the next 5 years - we've been patching small leaks here and there for years) and the interest rate is good.

This part rings alarm bells to me.

We just replaced our 25 year old roof this year. There were no visible leaks. However, when the got the top layer out, I could clearly see water damage to the underlying plywood below the shingles. We had to replace a few of the plywood boards for this reason.

If you have been patching leaks for a few years, then I would be worried about water damage to the structure at this point.

Also, how much does a roof cost? I live in a 1280 sq. ft house, in a very expensive state (= expensive contractors) and I got my roof done for $6300. Are you living in a very large house? If so, that could be a part of your problems.

Yep.  A roof that needs regular patching is not a good roof.   We don't have any actual issues with our roof (yet), but it is old and we are having some gutter and soffit issues so I am guessing we will go ahead and get everything fixed/replaced next year.  Not the kind of problem you should wait around on -- waiting until there are REAL problems will be much more costly.