Cash Out Refinance Is this a good idea?
This is my first time posting here but IÂm confused about refinancing. I know this is a long, complicated questions, but I hope someone can help me with a good answer.
First, I just refinanced my mortgage in February. My mortgage balance is approximately $91,500 at 5% for 30 years. My house was appraised at $176,000. I have owned my house for 8 years and I have no plans of moving. I am paying extra principal with each payment and, at the rate of my current payment, my mortgage will be paid off in 19 years 6 months. At the time I refinanced, my idea was to get the amount of my mortgage as low as possible. It seemed to make sense at the time. I also have a home equity line of credit of about $2,800 with a current rate of 3.25%. I am paying $100 a month on the home equity.
Currently, my car is 11 years old and my plan was to start saving for a new car (probably a newer used car) in the future. IÂm estimating $20,000 for a car, or maybe less for a good used car. I have about $3,500 saved for a car purchase so far. I do not have any other debt such as credit cards, etc. Right now I couldnÂt afford a car payment in addition to my payments on my mortgage and home equity unless I pay off my home equity with my savings and quit paying extra on my mortgage, which I really donÂt want to do. (Yes, I do have other investments but I donÂt want to touch those, especially in this economy.)
After doing a lot of thinking and playing with a mortgage calculator, I determined that if I did a cash out refinance for $112,000, I could easily afford a new/used car with my current savings and using my current car as a trade in. If I refinanced again, I would definitely roll my home equity line of credit into my mortgage so I could apply that payment to my mortgage. (I included the closing costs for the refinance in the amount.) With this economy, the mortgage rates have now dropped to 4.875%. ThatÂs not a big factor in my decision, but itÂs better than 5%. I would never do it at a higher rate. My plan would be to pay $735 per month on this mortgage to pay it off in 19 years and 11 months. Using this scenario, I would have only one payment to make per month and I would only be paying $20 per month more than before and I would have a new car. Also, my credit score is over 800.
Also, in the 8 years that I have owned my home, I have made most major repairs on my house including siding, roof, furnace, air conditioner, and water heater. I donÂt see any major repairs in the near future. If I would encounter some unexpected expenses, I could quit paying extra on my mortgage.
I talked to a friend about this scenario and he thinks I have lost my mind for even considering this. Have I lost my mind or does this sound like a good financial decision? I would appreciate your comments.