This is as great topic to discuss as I personally have been contemplating this for weeks myself. I am fortunate enough to have quite a bit of equity in my home and have a really great interest rate of 3.85%
With interest rates tinkering just below 3.0 percent lately, I too have thought about doing a cash out refi to make improvements to my home. When doing a refi, you have to consider closing cost expenses and the fact that you are basically starting the term of your loan over.
If you plan on doing direct improvements to your home, and as long as it isn’t a fire engine red kitchen, or something only you may love (not the general public) then this may be a good move since the money is going back into your home which will ultimately improve the value of your house.
A bad reason to refi is to pay down debt, such as credit card debt. Credit card debts are unsecured loans so if the unexpected happened and you couldn’t pay those
credit card debts, yes it would hurt your credit. However, if you roll a large unsecured debt or debts into your refi to pay them off and then run into a financial hardship your past credit card debt is now part of your secured loan which could then put you at risk of losing your home.
The rule of thumb as they say is that if you would not be saving at least one percent in interest that the costs may not be worth it as most lenders have closing costs associated with refi’s.
If you are happy with your current interest rate and payment but want to pay down your mortgage quicker, try making bi weekly payments instead of monthly
payments as this basically give you 13 payments in a year versus 12. You can also just simply make an extra payment to send in with your existing payment but you should always do this in a separate check or payment and mark it “pay on principle”.
If you would like to discuss what is right for you, please reach out to Justin Kozera from Loan Depot (jkozera@loandepot.com) and he can discuss what may be the best route for you.
As always consult your accountant on all financial decisions.