cash out refi - good idea?
My husband and I are trying to decide if we should refinance our home and take some cash out to pay for a renovation. We've been in the house 7 years and refinanced after 2 because interest rates dropped significantly. We currently have 25 years left to pay at 5.5% and our monthly payments are $1100 (incl. mortgage insurance and taxes). The refinancing would be for $138,000 and give us a new 25-year mortgage at 5.0% and monthly payments would be $1450. After closing costs, prepayments and paying the balance on our current mortgage we'd get $38,000 cash out to remodel the kitchen (it is the original 1960s one and poorly laid out so it needs it!).
My husband is gungho to do this because he is the optimist in the family, but I'm the pessimist and I'm wary. I'm afraid that if we are paying closing costs 3 times in 7 years we are just being stupid. I also feel that with the closing costs (very high in NY) and the prepayments we are effectively paying $11,000 to borrow $38,000. My husband insists that is not the case, but it feels like it to me. Am I just being blinded by the upfront costs and this is a good deal, or are we paying too much to borrow?
BTW, I would really like a new kitchen, but the higher mortgage payment scares me, even though we can afford it because we will stop paying for childcare at about the same time we would incur the new mortgage payments.