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Should I Do a Cash-In Refinance?

Question: I recently looked at mortgage refinancing and found that I can save several hundred dollars per month with a fairly straightforward refi.  However, I currently have between 10-15% equity in the home and could potentially save another $100-200 per month by adding $15,000 in cash to cut the rate and trim the mortgage insurance.  Is it worth giving up this liquidity for a lower payment?



Answer: You should probably hold onto your cash. Liquidity is important right now, especially with ongoing economic uncertainty. Having cash that’s accessible could be of more value than locking it into a home.

Let’s run through some scenarios. Yes, the upside to putting an extra $15,000 into the home would be smaller monthly mortgage payments. But a long time will pass before that cash can be recouped. With a payback of just $100 a month, you’ll have to wait about twelve and a half years to recoup that money. That’s a long time, even for someone who plans on staying in their home for a while. However, if the payback ends up being $200 a month, the payback period is half that – a better deal but still not fast.

The bigger downside to putting the $15,000 toward your mortgage is the risk of losing it completely. “If property prices should fall, his additional commitment of equity could be wiped out and…may be unrecoverable,” says Keith Gumbinger, vice president at HSH Associates, which tracks mortgage data. Put in perspective, that risk doesn’t seem worth it especially when that $15,000 won’t entirely wipe out those private mortgage insurance payments.

Bottom line: Go forward with the refinance but hold on to that extra $15,000. Gumbinger recommends seeing if this money can help you get a better return elsewhere, like paying down student loans or high-interest credit-card debt.


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    • You should have went to the right preinssfooals and you would not be in this situation. Not only the ownership rights of the house should have been transferred but also the financial obligation against it. Unfortunately, you’re still responsible and the loan company should be attempting to contacting you when payments are behind.Because this was not done correctly in the first place I have to wonder if you still have ownership in the property. Was this transaction done at a title company and did you file a Quit Claim Deed on the property? If not, you still have have joint ownership in the property. What that means is that if the house was ever sold then the proceeds must go to you too. He would not be able to account for the transaction between the two of you because it was not done correctly. Take that as you will

    • Another way to look at this: Let’s say your savings after accounting for a smaller tax deduction due to lower interest payments is $100/month. Would you make an investment of $15,000 that gave you a tax-free and risk-free return of 8% (1,200/15,000)? To get this in another investment would require huge risk. As long as you are not draining your emergency fund, you can certainly make a good argument. On the downside, this money is locked up until you sell the house.

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    • I think this decision would also hinge on how much other cash you have available. If you can do this and still have a truly sufficient emergency fund, I don’t see it as a bad idea. You’re not just reducing your monthly payments, you’d be shaving quite a bit off of the total you’ll pay, due to the reduced interest rate AND not paying interest on the extra 15k. My wife and I just refinanced this summer, and our monthly payment went up! We switched from a 30yr to a 15yr loan. The monthly payments went up about $50, but we’ll save 1000′s over the course of the loan.

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