Author Topic: In the middle of a refinance, should I ask for cash out?  (Read 3049 times)

Quick240

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In the middle of a refinance, should I ask for cash out?
« on: November 05, 2012, 07:59:53 AM »
I'm refinancing right now with PenFed to a 5/5 ARM.  We don't plan on living here longer than 2-3 yrs as we plan to build on the 3 acre lot we bought in January.  Assuming lenders even do cash out anymore, should I try asking for it from PenFed and then use that money to pay down my lot loan? 

Here's the numbers...

Current Mortgage:
13 years left on a 15 yr fixed at 4.25%
Remaining balance of $75k
Appraised at $130k 2 yrs ago for the last refi (so I'm expecting the appraisal done last week to be at least that much since I've remodeled the entire kitchen, added a deck, and replaced half the windows since then)

New Mortgage:
30 year 5/5 ARM at 2.75% (w/zero closing costs)

Lot Loan:
2 yrs and 3 months left on a 3 yr balloon loan at 4.5%
Remaining balance of $65k
Payment is $650/mo, but I pay $2500/mo so that by the time the balloon hits there is no remaining balance

Assuming they allow a max 75% LTV, I could get $22500 (or more if the appraisal comes back higher than the $130k figure).  To me it almost seems like a no-brainer.  Use money borrowed at 2.75% to pay down money borrowed at 4.5%, duh!  I'm just hoping for a second pair of eyes to take a look and see if they come to the same conclusion or if I'm forgetting anything in my calculations.  Obviously the $22500 won't pay off the lot loan completely, but it does get me closer so it still makes sense to do this, right?

Another Reader

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Re: In the middle of a refinance, should I ask for cash out?
« Reply #1 on: November 05, 2012, 09:20:53 AM »
Typically cash out is not allowed on the lowest rate refi mortgages.  The interest rate for cash out mortgages is often significantly higher.  Ask your loan officer about your cash out options in this loan product.

Quick240

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Re: In the middle of a refinance, should I ask for cash out?
« Reply #2 on: November 05, 2012, 09:41:55 AM »
Yeah, I'm skeptical on it even being possible (without at least a higher rate, like you said).  But I didn't want to even bother asking the lender about it, if (for some reason) it's not even a good idea in the first place...

Another Reader

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Re: In the middle of a refinance, should I ask for cash out?
« Reply #3 on: November 05, 2012, 09:54:12 AM »
Have you thought about how you will finance building the house?  Have you talked to a lender about construction loans?  Your options on that may affect what you do on the cash out.

DoubleDown

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Re: In the middle of a refinance, should I ask for cash out?
« Reply #4 on: November 05, 2012, 10:01:08 AM »
Typically cash out is not allowed on the lowest rate refi mortgages.  The interest rate for cash out mortgages is often significantly higher.  Ask your loan officer about your cash out options in this loan product.

Good point here. A very favorable way around this is to obtain a Home Equity Line of Credit (HELOC) just as soon as your primary loan closes. You can even start the application while waiting for your primary loan, but you'll probably have to wait until after your primary loan closes to close on the HELOC. Typically a HELOC will be no-cost, will give you lots of flexibility for drawing on it as you need (such as for construction on your new lot), and will also have a very low rate with today's prime rate being so low. You can decide how much to take, when you need it, rather than taking out a fixed amount up front on your primary loan.

Quick240

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Re: In the middle of a refinance, should I ask for cash out?
« Reply #5 on: November 05, 2012, 11:35:39 AM »
Have you thought about how you will finance building the house?  Have you talked to a lender about construction loans?  Your options on that may affect what you do on the cash out.

We bought the lot for $150k so I'm hoping the equity I have in it already (and will continue to add to) will cover the down payment towards the construction loan.  I also have around $30k sitting in a taxable investment account should I need it...

Quick240

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Re: In the middle of a refinance, should I ask for cash out?
« Reply #6 on: November 05, 2012, 11:44:13 AM »
A very favorable way around this is to obtain a Home Equity Line of Credit (HELOC) just as soon as your primary loan closes.

I was considering this approach too, but just thought it would simplify things handling it all in the one primary loan.  Also the rates I saw on the HELOC didn't seem as attractive as the 2.75% I would get on the primary.  Of course, as mentioned before, I may not get that rate anymore if I want cash out, so it may not matter anyway...

Maybe I'll send a quick email to my loan processor and see what's even possible...