The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: themagicman on March 04, 2016, 01:08:36 PM
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I have seen several people on here who consistently do cash out refinances and invest the difference and plan to continue to do this as long as rates are low. They advocate to do this in order to not increase the equity in their residence and to invest to money. I am interested in doing this because I think the market will out preform over the next 30 years. My question is not whether or not this is a good idea but how are people doing this. Specifically with limiting closing costs. I have seen that closing costs will cost $4-5k and have heard people doing them several times in the last decade. Is there a bank that a lot of people use to reduce this? The plan does not seem as great with the closing costs adding up. Any advise on this?
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"Closing costs" is sometimes a misleading term. I've refinanced twice, and each time, my actual net costs were in the $1700-1900 range. That doesn't mean I didn't need to throw a few thousand on my mortgage... but a couple things can happen.
* New escrow can be opened, and you need to fund it (but then old escrow is closed and you get that.)
* You prepay a period of interest (i.e. until your first mortgage payment on the newly refinanced loan) - this is money you are paying either way
So when all is said and done, the actual cost to you is just any fees you end up paying. Any kind of escrow or prepaids are not costs that you realize. They are part of the mortgage payments you would have made anyway.
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"Closing costs" is sometimes a misleading term. I've refinanced twice, and each time, my actual net costs were in the $1700-1900 range. That doesn't mean I didn't need to throw a few thousand on my mortgage... but a couple things can happen.
Did you feel that the $1700-1900 was worth the refinance? I am unsure how long I will end up staying in the house, so the less fees that I have to pay the better.
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Well, I did it for different reasons... I went from a 30 year @ 6.375% to 15 year @ 5.0% and then... to a 15 year @ 3.375%. The interest savings compensated for the closing costs quickly.
Now I considered the opposite... refinance back out to 30 to invest, but the leap in interest rate on the entire principal just seemed to be too much loss to overcome. (On a long enough timeline, it would be better, assuming historical returns...)
Buying a house now, and going with 3.75% 30 year rather than 3.125% 15 year... In this case I want to invest the difference from the beginning!
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Well, I did it for different reasons... I went from a 30 year @ 6.375% to 15 year @ 5.0% and then... to a 15 year @ 3.375%. The interest savings compensated for the closing costs quickly.
Now I considered the opposite... refinance back out to 30 to invest, but the leap in interest rate on the entire principal just seemed to be too much loss to overcome. (On a long enough timeline, it would be better, assuming historical returns...)
Buying a house now, and going with 3.75% 30 year rather than 3.125% 15 year... In this case I want to invest the difference from the beginning!
Yeah I wish I would have invested from the beginning. I have about $180k in home equity and would love to be able to invest that
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Open an account on a serious brokerage like I and you'll pay Libor rates for the margin you use which is like 0,5% or less as of now. Just use good brokers no Scott trades and all those that charge you 7+% for a margin account.
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Or buy some long term option contracts...
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This is a great idea if you could still make the mortgage payments should everything you invest in tank and you lose your job. It's good to have balls of steel and other body parts to match to ride out any and all market downturns, corrections and crashes. Can you manage that? If so, go for it!
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This is a great idea if you could still make the mortgage payments should everything you invest in tank and you lose your job. It's good to have balls of steel and other body parts to match to ride out any and all market downturns, corrections and crashes. Can you manage that? If so, go for it!
Yes, I do not think I would have a problem managing that. I am just not sure if I am wanting to pay all of the fees up front. Does anyone use no closing cost refinance options?