Profile picture for HelpWithRefi

Refinance and cash out for remodel but now plans have changed.....

    We recently refinanced and took cash out for an addition but our plans changed. Is it better to refinance to a lower amount? Its a $100K cash on a $385K loan. 15 yrs fixed at 3.75%. I am very conservative with money and I know I cannot make 3.75% anywhere at this point. Any suggestions?
  • December 03 2010 - Los Gatos
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Answers (6)

Profile picture for Mills Realty
No reason to re-fi.  Contact the lender and let them know the situation.  In exchange for the $100K payment they will recast you note without any additional fee.  True you could invest it and get a better rate of return, but your comment says that you are conservative and any investment has risk.  Pay it back, get a lower payment and enjoy your 3.75 rate!
  • December 03 2010
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HelpWithRefi,

For what it's worth, I would do an interest calculation on what you're paying on the $275K and what you're paying on the $100K.  I would look at this over, say, a 5 to 7 year horizon.  The dollar amount of finance charge on the cash out portion might surprise you --- or it might not, but it's good to know what it is.

Secondly, you may not find a beneficial rate of return at a comfortable risk level NOW, but remember that your loan is at a fixed rate.  So, if you hold onto that $100K, and in 3 years you're making 6% in another investment, will you view things differently?

If you can afford your payments on the loan and if you believe that the banking situation over the last years has taught us some valuable lessons about having cash on hand, then you may think twice about giving the $100K back to the lender.  If the tables were turned, I can assure you the bank would not be givng the $100K back to you.

Just a thought.  Good luck with your decision, and definitely don't refi again for this purpose.

Thank you!

  • December 03 2010
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Annette is correct...it's called recasting...for 100K input, the bank must readjust for you.  But cash is king....you've got it....keep it.
  • December 03 2010
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You do not need to go through the cost of refinancing. If you add $100,000 to your next mortgage payment with a note, your mortgage balance will be reduced. Your mortgage servicer must reamortize your mortgage (per federal guidelines). You then receive a letter with your new lower payment.
  • December 03 2010
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Well, you can make 3.75% and you can make 10%....if that's the stumbling block you need a good financial advisor.  Universal Life policies, Life Settlements, flipping houses, there are lots of places to make more than 3.75%.
  • December 03 2010
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My suggestion would be to make a principal contribution (reduction) of $100,000.00 on your loan.  Rates have risen.  If you refinance you will add more cost to your loan balance, have a higher interest rate, and will not recover your closing costs.   

  • December 03 2010
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