Cash-out refinance to REDUCE equity?
Cash-out refinance to REDUCE equity?
This is possibly a very idiotic question, however I’m wondering if it’s possible to somehow re-purchase your own house after you pay it off, in order to pull the equity out of it, and start a mortgage over again.
I’m thinking of a situation where you have a million dollars tied up in a home in CA for example, but you no longer want that much of your holdings to be in one asset, and with a potential for destruction in an earthquake/etc. Or just want to re-allocate to other things.
I know people usually use a cash out refinance to get a lower rate and cash to do updates (and pay off the first mortgage) but does anyone do what I’m referring to, basically just ‘withdrawing’ most or all of the value of the house to do something else with the money and have a mortgage again?
I’m thinking of a situation where you have a million dollars tied up in a home in CA for example, but you no longer want that much of your holdings to be in one asset, and with a potential for destruction in an earthquake/etc. Or just want to re-allocate to other things.
I know people usually use a cash out refinance to get a lower rate and cash to do updates (and pay off the first mortgage) but does anyone do what I’m referring to, basically just ‘withdrawing’ most or all of the value of the house to do something else with the money and have a mortgage again?
Re: Cash-out refinance to REDUCE equity?
Perhaps not idiotic but unwise....
Essentially risking a paid for home and securing it with a loan to make money in the market. I hear lots of ads on the radio for this sort of thing here in Raleigh. My guess is you can do a refi for a certain amount without raising red flags and without telling them what you want to use the money for but is that a smart move? Perhaps a HELOC is an option albeit probably a higher interest rate than a conventional mortgage.
Essentially risking a paid for home and securing it with a loan to make money in the market. I hear lots of ads on the radio for this sort of thing here in Raleigh. My guess is you can do a refi for a certain amount without raising red flags and without telling them what you want to use the money for but is that a smart move? Perhaps a HELOC is an option albeit probably a higher interest rate than a conventional mortgage.
- simplesimon
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Re: Cash-out refinance to REDUCE equity?
Business owners do this all the time. Diversification itself isn't a very good reason.
Can you finance whatever you're trying to diversify into with future cash flows?
Can you finance whatever you're trying to diversify into with future cash flows?
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Re: Cash-out refinance to REDUCE equity?
If you felt like 1M$ is too much of a house to have in your portfolio, you could also move / downsize.
I could see maybe taking out a heloc for some renovations, but taking out a mortgage on a paid off house seems like a poor move to me. You've qualified to live in a 1M$ home, so you have a combination of income or assets to put you there. Take you income and dollar cost average that into the market if you are unwilling to move.
If it was easy to get 500k personal loans at 3% over 30 years - would you sign up for this loan to invest it? I'm sure some people would, but I'm not sure I would.
(I'm sure others would see this differently)
I could see maybe taking out a heloc for some renovations, but taking out a mortgage on a paid off house seems like a poor move to me. You've qualified to live in a 1M$ home, so you have a combination of income or assets to put you there. Take you income and dollar cost average that into the market if you are unwilling to move.
If it was easy to get 500k personal loans at 3% over 30 years - would you sign up for this loan to invest it? I'm sure some people would, but I'm not sure I would.
(I'm sure others would see this differently)
Re: Cash-out refinance to REDUCE equity?
I think with a cash out mortgage would not be tax deductible under the new Trump law, especially over 750K so that's definitely a negative. Only purchase mortgages are tax deductible now up to 750K. So maybe sell your house and buy another with minimum down?
- Earl Lemongrab
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Re: Cash-out refinance to REDUCE equity?
Certainly you can. As noted, there have been changes in deductibility. Five years ago I took a cash-out loan on a paid-off house for investing purposes. Now, I live in a low-cost area so the numbers were much smaller. At the time, interest on up to 100k loan was deductible no questions.
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Re: Cash-out refinance to REDUCE equity?
Moving to an equal value house with a new mortgage in California would be a problem. Due to Proposition 13 limits, a house that you have lived in for a long time will have much lower property tax than if you move to a new house of the same value.
Ralph
Ralph
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Re: Cash-out refinance to REDUCE equity?
Sure. I did just that. I paid cash for my place due to not being able to get a mortgage (self-employed nonsense). After a year or so I wanted money to remodel the place so I took out a mortgage.
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Re: Cash-out refinance to REDUCE equity?
I would think refi's are as well.
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Re: Cash-out refinance to REDUCE equity?
A refinance is deductible if you do not take cash out, and to the extent it is less than $750K, right?
Re: Cash-out refinance to REDUCE equity?
Why wouldn't a cash out refinance not be deductible as long as its under $750K?NotWhoYouThink wrote: ↑Mon Jan 08, 2018 12:28 pmA refinance is deductible if you do not take cash out, and to the extent it is less than $750K, right?
Re: Cash-out refinance to REDUCE equity?
That's what earthquake insurance is for. A non-purchase money loan is likely to be recourse to the borrower. This only works if you have a non-recourse loan which are typically only reserved for original purchase money loans in a few states. A common fallacy is that people think "I can just walk away". Well your lender is going to come after you with a deficiency judgment.slalom wrote: ↑Thu Jan 04, 2018 5:35 am This is possibly a very idiotic question, however I’m wondering if it’s possible to somehow re-purchase your own house after you pay it off, in order to pull the equity out of it, and start a mortgage over again.
I’m thinking of a situation where you have a million dollars tied up in a home in CA for example, but you no longer want that much of your holdings to be in one asset, and with a potential for destruction in an earthquake/etc. Or just want to re-allocate to other things.
I know people usually use a cash out refinance to get a lower rate and cash to do updates (and pay off the first mortgage) but does anyone do what I’m referring to, basically just ‘withdrawing’ most or all of the value of the house to do something else with the money and have a mortgage again?
Just get a HELOC if you are wanting to do what you describe.
Re: Cash-out refinance to REDUCE equity?
False. You can transfer your current low property taxes to almost every other county in California. Just check the with the new county to see if they accept it. If you are over 55, you can also transfer the same tax rate to your child or grandchild if they become the owner.ralph124cf wrote: ↑Thu Jan 04, 2018 11:06 am Moving to an equal value house with a new mortgage in California would be a problem. Due to Proposition 13 limits, a house that you have lived in for a long time will have much lower property tax than if you move to a new house of the same value.
As far as earthquakes, you will still owe the same money to the bank for the mortgage. You COULD walk away from the house, but that would trash your credit for 7 years.
Most people I know who have lived in the same house in California for a long time find that although they qualified for the mortgage when the house was worth less, they would no longer qualify to buy their now more expensive house.
Re: Cash-out refinance to REDUCE equity?
Since a cash out refinance is not acquisition debt. A rate/term refinance without taking cash out is still deductible.emoore wrote: ↑Mon Jan 08, 2018 12:47 pmWhy wouldn't a cash out refinance not be deductible as long as its under $750K?NotWhoYouThink wrote: ↑Mon Jan 08, 2018 12:28 pmA refinance is deductible if you do not take cash out, and to the extent it is less than $750K, right?
Re: Cash-out refinance to REDUCE equity?
I don't believe you can do it for every county.celia wrote: ↑Mon Jan 08, 2018 1:03 pmFalse. You can transfer your current low property taxes to almost every other county in California. Just check the with the new county to see if they accept it. If you are over 55, you can also transfer the same tax rate to your child or grandchild if they become the owner.ralph124cf wrote: ↑Thu Jan 04, 2018 11:06 am Moving to an equal value house with a new mortgage in California would be a problem. Due to Proposition 13 limits, a house that you have lived in for a long time will have much lower property tax than if you move to a new house of the same value.
As far as earthquakes, you will still owe the same money to the bank for the mortgage. You COULD walk away from the house, but that would trash your credit for 7 years.
Most people I know who have lived in the same house in California for a long time find that although they qualified for the mortgage when the house was worth less, they would no longer qualify to buy their now more expensive house.
"What is the difference between Proposition 60 and Proposition 90?
Proposition 60 allows transfers of base year values within the same county (intracounty). Proposition 90 allows transfers from one county to another county in California (intercounty) and it is the discretion of each county to authorize such transfers.
What are the counties that have enacted ordinances to accept intercounty transfers?
As of June 5, 2015, the following eleven counties in California have an ordinance enabling the intercounty base year value transfer:
Alameda, Orange, San Diego, Tuolumne, El Dorado *Riverside, San Mateo, Ventura, Los Angeles, San Bernardino, Santa Clara
Since the counties indicated above are subject to change, we recommend contacting the county to which you wish to move to verify eligibility.
* On August 30, 2016, the El Dorado County Board of Supervisors approved an extension of their ordinance, which will now sunset on October 1, 2021."
http://www.boe.ca.gov/proptaxes/faqs/pr ... #transfers
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Re: Cash-out refinance to REDUCE equity?
Are 100% sure on this one?mikep wrote: ↑Mon Jan 08, 2018 3:33 pmSince a cash out refinance is not acquisition debt. A rate/term refinance without taking cash out is still deductible.emoore wrote: ↑Mon Jan 08, 2018 12:47 pmWhy wouldn't a cash out refinance not be deductible as long as its under $750K?NotWhoYouThink wrote: ↑Mon Jan 08, 2018 12:28 pmA refinance is deductible if you do not take cash out, and to the extent it is less than $750K, right?
Re: Cash-out refinance to REDUCE equity?
This doesn’t sound right. Home equity loans are no longer deductible but I thought refinances still were. But I’m not an expert.mikep wrote: ↑Mon Jan 08, 2018 3:33 pmSince a cash out refinance is not acquisition debt. A rate/term refinance without taking cash out is still deductible.emoore wrote: ↑Mon Jan 08, 2018 12:47 pmWhy wouldn't a cash out refinance not be deductible as long as its under $750K?NotWhoYouThink wrote: ↑Mon Jan 08, 2018 12:28 pmA refinance is deductible if you do not take cash out, and to the extent it is less than $750K, right?
https://www.nationalmortgagenews.com/ne ... tax-reform
Re: Cash-out refinance to REDUCE equity?
Interest that isn't deductible as mortgage interest may still be deductible as investment interest, depending on how the borrowed funds are used. Different rules, different restrictions.
Re: Cash-out refinance to REDUCE equity?
Just to add, you can also only do this if you are over 55.hale2 wrote: ↑Tue Jan 09, 2018 9:53 amI don't believe you can do it for every county.celia wrote: ↑Mon Jan 08, 2018 1:03 pmFalse. You can transfer your current low property taxes to almost every other county in California. Just check the with the new county to see if they accept it. If you are over 55, you can also transfer the same tax rate to your child or grandchild if they become the owner.ralph124cf wrote: ↑Thu Jan 04, 2018 11:06 am Moving to an equal value house with a new mortgage in California would be a problem. Due to Proposition 13 limits, a house that you have lived in for a long time will have much lower property tax than if you move to a new house of the same value.
As far as earthquakes, you will still owe the same money to the bank for the mortgage. You COULD walk away from the house, but that would trash your credit for 7 years.
Most people I know who have lived in the same house in California for a long time find that although they qualified for the mortgage when the house was worth less, they would no longer qualify to buy their now more expensive house.
"What is the difference between Proposition 60 and Proposition 90?
Proposition 60 allows transfers of base year values within the same county (intracounty). Proposition 90 allows transfers from one county to another county in California (intercounty) and it is the discretion of each county to authorize such transfers.
What are the counties that have enacted ordinances to accept intercounty transfers?
As of June 5, 2015, the following eleven counties in California have an ordinance enabling the intercounty base year value transfer:
Alameda, Orange, San Diego, Tuolumne, El Dorado *Riverside, San Mateo, Ventura, Los Angeles, San Bernardino, Santa Clara
Since the counties indicated above are subject to change, we recommend contacting the county to which you wish to move to verify eligibility.
* On August 30, 2016, the El Dorado County Board of Supervisors approved an extension of their ordinance, which will now sunset on October 1, 2021."
http://www.boe.ca.gov/proptaxes/faqs/pr ... #transfers
http://www.boe.ca.gov/proptaxes/faqs/pr ... 0_90.htm#2