Seeking advice on refi + cashout

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Topic Author
Loonshot
Posts: 1
Joined: Sun Nov 28, 2021 9:12 am

Seeking advice on refi + cashout

Post by Loonshot »

Hello Bogleheads,

Need advice on refi+cash-out.

Current situation:
45 yo, Family of 4, 2 kids, 9 and 5, 1 special needs kid
Both work, ~$400k per year; stable jobs (as stable as can be in the present day world)
~$70k in savings
been maxing out 401k every year
No other loans (I hate loans; never taken a loan in life except mortgage), $0 credit card debt
$640k mortgage (~35% equity), started in 2017 at 3.9%; did a rate adj to 3% in Feb 2021

I am thinking of a refi + $100k cash-out to get to ~25% equity (looking at bettermortgage with its $6k amex benefit). I am able to do it now because property prices have gone up ~10%. Rate is probably going to be around the same 3% with closing costs

Why I need loan:
* Remodeling bathroom and kitchen (~$40k to 50k); Avoided this as much as possible but now kitchen/bath is falling apart
* I can use my savings to pay for the project but my backup/emergency fund will become dangerously low. This cash-out will serve as a buffer

Potential options with the cash-out:
(1) Use it for remodel and invest the rest
(2) Use my savings to pay for remodel and if this cash-out buffer is not needed in a year, pay part of it back as principal and invest the rest. I figure, it shouldnt be hard to get back 3% (aka mortgage rate) in some not-so-risky investment

Alternative is HELOC but rates are higher and ARM is likely to go up. Frankly, I hate loans but feel that I need it as an energy buffer. Any advice will help. Also, what does everyone think of better mortgage + Amex ~$6k refund (which will cover part of the closing costs?)

TIA!
tashnewbie
Posts: 4230
Joined: Thu Apr 23, 2020 12:44 pm

Re: Seeking advice on refi + cashout

Post by tashnewbie »

Mostly commenting to bump the thread.

Couldn't you just cashflow the remodels? Pick whichever space needs the remodel the worse. Take say $50k of your current cash and pay for it. Then you can build up extra monthly cashflow, likely over just a few months, to pay for the other remodel. Depending on when you have to pay the contractors, you may be able to adjust things a bit (e.g., if you have to pay 50% upfront and 50% upon completion, if projected timeline is 2 months, then you may be able to overlap both projects to some degree).

If you find yourself strapped for cash after you've paid for either remodel, then temporarily lean on a 0% APR credit card or HELOC. Hopefully you wouldn't need to actually do this.

If you decide to go the refi route, I'd look for a no- or very low-cost option (maybe the Amex refund brings the option you've explored into this territory?). And if you do the refi, you should probably use it all to do the remodels instead of trying to use leverage to invest. In today's rate environment, I think it'd be very hard to get a guaranteed >3% return in some "not-so-risky investment" on $100k. I bonds will probably get you that over the next 12 months, but you could only easily invest $40k between you and your spouse, if you purchased $20k before 2022 and $20k in 2022.
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