Hey all, trying to decide between these two options. Anyone have any advice? • The interest rate for cash out is 3.875% Principal and interest payment $1,833.92 loan amount $390,000 cash out to you approximately $40,300 • The interest rate for rate&term 3.500% Principal and Interest payment $1,585.13 loan amount $353,000 cash to close $700 for appraisal fee, 0 due at closing. • • $40,000 cash out costs $248 a month difference in payment

If it's your primary home, I would refinance to a lower rate, then find the most competitive HELOC (home equity line of credit) product and open a line. HELOCs offer a higher combined LTV ratio than cash-out refi's, and you don't borrow/pay interest until you actually pull money from the line.

Hi Chris - total interest saved over 30 years between 3.5% rate and a $353,000 loan amount vs. $3.875% rate and $390,000 loan amount is $52,567. Reality is you won't hold that loan for 30 years. Difference in 10 years is $25,492. My opinion: your money is better suited elsewhere - especially hearing your goals of buying a new place - so I would cash out the $40K. Long term cash flow between 3.5% and 3.875% is fairly insignificant considering the extra $40K you can take with the higher rate. Hope that helps and good luck!

I guess it would also depend on how long until you move. If you take the $40k out, you wouldn’t just want it sitting in a bank account for the next 3 years. If your planning on moving next month and need that money as a down payment then it would be smart.

Over a 30 year term, your 3.5% saves $29,754 vs the 3.875 rate with $390k loan on both. Anytime you can leverage equity from a home at rate X and invest that money into a cash producing asset with a return rate of Y where Y is greater than X, you have created arbitrage and an infinite return (but with risk of course).

Thanks for the reply @Matt Haman and @Jon Schwartz. It is currently our primary residence. But eventually we want to use it to put towards a down payment on our next primary residence, then use the condo we are currently in as a rental...does this change things? Also, how much over the course of the 30 year loan do we save going with a 3.5% loan versus a 3.875% loan?

Is this an investment property? If not, I'd refi for the better rate and open a HELOC. If it isn't owner-occupied, take the equity out if you have (or are confident you will have) something to put it toward. Love the videos on your site! Best, Jon

It’s better to take the equity out of your home (if your planning on staying there and the monthly payments work for you) and put it to work making you money on another deal.

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Updated about 3 years ago on 12/22/2021. Most recent reply

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Chris RisiPoster

Real Estate Agent
Phoenix, AZ

Buying & Selling Real Estate

Refi in Los Angeles- to Cash out or not?

Chris RisiPoster

Real Estate Agent
Phoenix, AZ

Posted December 21, 2021 17:55

Hey all, trying to decide between these two options. Anyone have any advice?

The interest rate for cash out is 3.875% Principal and interest payment $1,833.92 loan amount $390,000 cash out to you approximately $40,300
The interest rate for rate&term 3.500% Principal and Interest payment $1,585.13 loan amount $353,000 cash to close $700 for appraisal fee, 0 due at closing.
$40,000 cash out costs $248 a month difference in payment

Chris Risi

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