Primary Residence: Refi Options - To Cash Out or Not?

[Mark S.]

I’m weighing options on whether or not I want to refinance my primary residence. I am in no rush necessarily to pay off my home, so we can leave the debt free vs not debate for another thread. I am also only interested in 30-year fixed mortgage, so the 15 vs 30 year comments can also wait for another day.

With all that said, here are the numbers and options:

CURRENT

Home Value: $215K

Outstanding 1st Mtg: $117K

Outstanding 2nd HELOC: $28K (used for rental)

Total Debt: $145K

Total Equity: $70K

Current P&I pmt: $726/mo

Current int rate: 3.375% (30-yr fixed)

Amortization: 8 years in.

OPTION 1 (Recast Primary Only)

Recast $117K over 30 years at 2.50% fixed.

New P&I pmt: $464/mo

HELOC stays subordinated at current 3.50% variable rate.

Pros: Lower monthly pmt (more flexibility), lower interest rate,

Cons: Reset amortization schedule, 8 more years of payments (but again, I’m planning to invest the difference and play the arbitrage game), no cash out option at this int rate.

OPTION 2 (Cash-Out Refi)

80% LTV Cash Out Refi at $172K loan at 2.99% fixed

New P&I pmt: about same as current

Current HELOC gets paid off/"rolled in" to new mortgage

$26,500 cash out minus fees, so probably low-to-mid $20Ks cash out

Pros: tax-free cash out for other investments, lower interest rate than current (2.99% vs 3.375%), replacing current $28K HELOC debt at 3.50% variable with 2.99% fixed

Cons: no reduction in pmt, larger loan amount than current

OPTION 3 (Steroids)

Same as Option 2 except going out and getting NEW HELOC to tap additional equity (local credit union does 90% LTV)

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Primary Goals: Flexibility & Increase monthly cash flow

Secondary Goal: Reduce interest expense

Side note that I am in great financial shape with no real “need” to reduce my monthly payment but am looking to relatively early FI. I am in growth/acquisition mode of building my rental portfolio and believe this could slightly help accelerate the process.

Interested to hear others’ thoughts and frameworks they would use to make a similar decision. Thanks in advance.