Should I Cash Out Refinance In 2024?! | Refinancing Your Home

Don't do it. Don't touch that 3% interest rate. The pros and cons of a cash out refinance 2023 edition. In this video, I'm going to go over the pros and the cons. I'm going to surprise you with what some of my advice, but trust me that in 2023, this video is more important than ever. A lot of you, unfortunately, are making some bad decisions when it comes to refinance, because you're talking to a salesperson that only gets paid if they close a refinance. While I am also a mortgage professional who gets paid when I close a refinance, I like to sleep good at night. So I'm going to give you good, honest advice like I have in the past videos. That's why they have hundreds of thousands of views because I give it to you straight. It's not going to make sense in a vast majority of scenarios for a cash out refinance in 2022. That's just the truth. All right, Matt, the mortgage guy, residential mortgage broker licensed across the country. Go to great mortgage broker.com. Fill out the form. If you're looking to do a cash out refinance or a purchase, we're going to give you good advice in this video. I'm talking to cash out refinance, and I really think that it's important because I talk to people all the time and the way that it should be discussed with a mortgage professional in 2023 is you talk me into why you want to do cash out refinance. You sell me because the chances are you've got a much lower interest rate where you've got to have a really good reason to get rid of that low interest rate and go into a higher interest rate with a cash out refinance. Not all of them don't make sense. There's still 10 or 15% of scenarios where I say, okay, I get it. We're going to do a cash out refinance for X, Y, or Z. In this video, I'll go over scenarios where it makes sense, scenarios where it doesn't. Before I get into that, since this is the 2023 edition, I wanted to talk about some changes in cash out refinance that are for 2023. First one being a cash out refinance on a conventional loan used to always be a six-month seasoning period, meaning from the date you purchased to the date you could do a cash out refinance was only six months. As of March 7th, 2023, Freddie is saying you've got to wait 12 months, Freddie being Freddie Mac. Freddie Mac and Fannie Mae, that's where all the conventional loans go. Fannie Mae is going to follow shortly. I'm sure by the time this video is released or in the very near future, Fannie is going to follow suit where all conventional loans are going to have this 12-month seasoning period. For investors, this is important. Buy, rehab, cash out refinance to recoup the costs. You're not going to be able to use that new appraised value and do a cash out refinance up to 75% of it until you're 12 months owning that property. Something important to consider. You can always do a rate and term refinance immediately. That's not going to change, but I'm talking specific cash out refinances in this video. Just as a quick side note, on the government stuff like FHA, VA, they're streamlined refinances. Those are roughly 210-day wait periods. USDA, you've got to have 12 months of on-time payments to just do a rate and term refinance. There's no such thing as cash out on a USDA. Okay. So with that out of the way, let's talk about specifics. Let's talk about pros and cons. I'll start with the cons, which you guys probably all know. If you're looking at this video and you're thinking about a cash out refinance, if your mortgage interest rate goes up and your payment goes up, this is definitely a con. Unfortunately, I've heard some really dirty, dirty sales secrets for talking someone into a cash out refinance without naming any names, quick and loans, has internal basic scripts to talk to a consumer and say, you know what, Betty, how much do you owe on your Kohl's card? How much do you owe on Home Depot? How much do you owe on that Visa card? Going over those credit card balances, going over what the interest rates are, and then saying something silly like your blended rate on all your debt is 8.6%. So don't worry that your mortgage is going from three to six because blended rate, you're going down from 8.6 to six. This sounds like a sales pitch and it is. Don't buy into doing cash out refinance to pay off a little bit of debt while vastly increasing your payment. There's a scenario where I could think of where it might make sense if you owe a hundred thousand on your house and that debt is at three or three and a half percent, we've got $150,000 in some really ugly six, eight, 10, 15, 20% debt. Then maybe by paying off 150,000 in that nasty debt with a cash out refinance up to 250, you're in a better position and you're better equipped to pay that stuff off. The vast majority of cases where you owe 330,000 and you're going to do a cash out refinance for 360 and put 20 or 30,000 in your pocket to pay off a few credit cards, it's going to put you in a worse spot than taking a home equity line of credit and paying off those credit cards, creating a plan. Maybe the plan involves cutting those cards up and aggressively paying them off over the next 24 to 36 months. A lot of great ideas. Very few times am I going to ever tell somebody take out a new mortgage and refinance hundreds of thousands of dollars of mortgage debt to pay off 20 or $30,000 in credit card debt, right? In different environments and in different times, it might've made sense. If you had a 4% interest rate and I could cash out refinance you into a three and a quarter and pay off some credit card debt, I'm good with that, right? Because your interest rate is coming down when it's going up and especially when it's going up by multiple points, it just doesn't make sense, right? And so you really need to take a look at that, find alternatives to touching hundreds of thousands of dollars locked into a 30 year fixed rate term of call it 3%, three and a half percent, wherever you're at. Cause I know how many people refinanced in 20 and 21 and there's a lot of some exceptions to this might be, you've got a 3.75 and it's an FHA loan with a $422 a month mortgage insurance. You've got equity, you're able to remove that mortgage insurance and maybe you know, you're in a position where you pay a little bit, you refinance it with some cash out to pay off some high interest debt and remove that mortgage insurance. And that kind of makes up because with that mortgage insurance, maybe that 3.75 looks a little bit more like a 4.75. So the interest rate's not, not going up that much when you do the cash out refinance, that would be a scenario where it's an exception, right? Um, really as much as I talk about these scenarios, everyone's specific scenario is different. This is why it's very important to talk to a mortgage professional like that you trust is going to give you straightforward advice. Nine out of 10 refinances I look at, I say, no, it doesn't make sense. I wouldn't do that. Here's what I would do. Home equity line of credit, pay off the credit card debt. It's only 14,000 credit card debt. Make a plan, pay 500 extra months. You'll be out of that debt within 12 to 18 months. There's other things, right? And there's other ways to go with it. Scenarios where it might make sense to do cash out refinance. And granted, these are fewer and far between than ever before. If the amount that you're pulling out on the cash out refinance is greater than the amount you owe, meaning you owe a hundred, but like in the scenario I talked about before, you're pulling out 150. If that 150 allows you to go into a great opportunity, that's going to yield 10 or 12% returns. That might be something you consider. If that 150 is going to pay off 10%, some type of debt that you want to get rid of, and you're paying $2,500 a month for some unsecured, some type of loan you took. That might make sense, but still you want to run it by someone who's going to give you straightforward, honest advice, but side-by-side current loan and new loan. And I can tell you that you do a cash out refinance, a new loan amount of 350 grand on a property that was looking at here in California with taxes and insurance. Tax and insurance will not change with a cash out refinance. It's not change of ownership. So that will stay the same. That's a pro of a cash out refinance is that your property taxes will not get reassessed. Let's say that that new payment is $2,500. Don't let anyone talk you into, yes, you currently pay 1,700, but with this 100,000, we're able to take out, you pay off X, Y, and Z, where you pay $1,600 a month currently. And so collectively you're now paying 33, you're going to pay 25. Well, don't let them fool you into not realizing that that 33, that 1,600 and other debts, some of it's amortized to pay off in three years or five years or seven years. It's not the whole 30. So some of that is just smoke and mirrors. Sorry to call you out. Mortgage folks that are trying to talk people into refinance, that is the case. So hopefully this was helpful. Again, I can't go over every single scenario. It just depends on your personal loan that you have right now, what the terms are on that, what you're looking to do and what the plans are. Another thing to consider, which I'll put it on the pro side and I'll say, okay, um, I get you when, when, when someone's talking about a refinance is that when you refinance into a 5.75% and you're going up a couple percent with the right game plan, it's not as bad as you might think because you're not going to stay in that loan forever, right? It's something that you're, um, most likely going to refinance, um, within three to five years. People don't stay in loans for 30 years and that's not how it works. So anyhow, if you'd like us to review it, we're more than happy to help great mortgage broker.com felt the form. We'll be in touch. If you want advice on anything else, mortgage on my channel, I promise you there's 700 videos. Type in your question. What's an escrow account? Should I pay points? What's the two, one buy down and you're going to find videos all over the channel. Check them out.