My husband and I are contemplating using cash-out refinancing to pay off our debts and make some home improvements. Here are our details: We’re a childless married couple earning $150k annually. Our home was purchased in 2020 with an FHA loan at 2.99%, resulting in a monthly payment of $2660. We currently owe $293,368 on our home, with an additional $38,299 in debt. The proposed refinancing would clear our debts and leave us with about $31k to save or invest, though our new mortgage would be at a 7.2% rate, increasing monthly payments to $3654. Our house is valued at $510,000. I’m worried about the uncertain market conditions—property values could decrease, but interest rates might also fall. Is it wise to refinance now and possibly again in a year? I’d appreciate any insights.
Honestly, I’m struggling to see the logic in this decision. It seems extremely risky.
Zev said:
Honestly, I’m struggling to see the logic in this decision. It seems extremely risky.
Considering your current mortgage and debt, I’m puzzled by the choice to also take on substantial car loans. It sounds like there may be more to your financial picture than is being shared.
@Tan
And that’s just on a $150k income.
Camden said:
@Tan
And that’s just on a $150k income.
Exactly my point.
Zev said:
Honestly, I’m struggling to see the logic in this decision. It seems extremely risky.
Paying off debt with more debt by leveraging your home is not a behavior change—it’s a risk escalation.
@Zayn
But wouldn’t the overall payment be lower?
That’s missing the point. It’s about the risk and long-term implications of such a financial strategy, not just short-term payment reduction.
@Zayn
This could be the financial reset needed, allowing them to rebuild their finances from a cleaner slate.
Xian said:
@Zayn
This could be the financial reset needed, allowing them to rebuild their finances from a cleaner slate.
I hope so, but it’s essential to address the habits that led to the debt in the first place. I recommend ‘The Total Money Makeover’ by Dave Ramsey to start.
Zev said:
Honestly, I’m struggling to see the logic in this decision. It seems extremely risky.
It almost feels like this scenario is not genuine.
Zev said:
Honestly, I’m struggling to see the logic in this decision. It seems extremely risky.
It almost feels like this scenario is not genuine.
I always wonder what motivates people to troll with financial questions. What do they gain from it?
Looking at your figures, why not focus on aggressive debt repayment instead of refinancing? With your income, it seems feasible to manage without restructuring the mortgage. Consider reevaluating your budget and lifestyle to facilitate this.
@Tan
Rolling that $38k into a new mortgage would cost you much more in the long run due to the higher interest. It’s essential to look at the full financial impact, not just the monthly payment.
With such a beneficial interest rate already, it might be wiser to adjust your budget and tackle your debts directly rather than refinancing. What led to the debt? Understanding that could influence the best approach to avoiding similar situations in the future.
Why not aggressively increase your debt repayments instead of refinancing? With your income, you should be able to clear the $38k reasonably quickly without touching the mortgage.
Have you considered a home equity line of credit (HELOC) or a second mortgage instead of refinancing? Keeping your current rate and exploring these options might be more beneficial.
Kei said:
Have you considered a home equity line of credit (HELOC) or a second mortgage instead of refinancing? Keeping your current rate and exploring these options might be more beneficial.
A HELOC might be the best route, preserving your low mortgage rate while providing the funds you need.
A HELOC would be preferable in your case to avoid disrupting your excellent mortgage rate.
Refinancing to a higher rate to pay off debt doesn’t sound like a financially sound decision. It seems like a step back.