Refinancing a house

amother

Ecru

Fri, Mar 23 2018, 12:15 am

How exactly does refinancing work? We are thinking of maybe buying a smaller cheaper home than originally wanted and in 5 yrs or so refinancing and putting a second floor on. If we take out a 30 yr mortgage will we even have enough equity in the house to refinance without having a much bigger monthly payment

Fri, Mar 23 2018, 2:53 pm

You need to talk to a mortgage broker, but I think what you're really talking about is a home equity loan, not refinancing.

We refinanced, and now have a lower interest rate than before.

amother

Copper

Fri, Mar 23 2018, 3:07 pm

amother wrote:

Speak to a mortgage broker. We took out a 30 yr loan than refinanced two years later when I had a better rate. They removed my PMI and I was able to cash out to do some renovations. My mortgage payment ended up being less than before even with the cash out. When someone refinances an existing mortgage they pay off the existing loan at closing and then your new loan starts from scratch again, I believe.
There is also an option to do a gap mortgage, Assignment and CEMA. Consolidation, Extension, Modification Agreement. Basically you end up paying less mortgage tax when doing a CEMA.

amother

Ecru

Sat, Mar 24 2018, 9:31 pm

Op. If I take out a home equity loan I will have to pay my original mortgage payments plus a new payment on the home equity loan. Is there a way I can keep my payment the same yet use the equity in my house to make renovations - basically add years to my mortgage

amother

Wine

Sat, Mar 24 2018, 9:36 pm

I don’t see that you’ll have much equity after 5 years on a 30 year mortgage. How much money were you thinking of getting out of this?

amother

Saddlebrown

Sun, Mar 25 2018, 3:07 pm

Putting on a new floor would cost about 100k I think ? So you can do the math. How much will your down payment be? How much do you expect the house to up in value? Will you pay extra to principal during the five years- that would really help. You cant really be sure about interest rates. Will you guys be bringing in more money at that point?. With refinancing you need to pay closing costs all over again so that's annoying.

At the end of the day it is probably cheaper to buy a bigger house.

married05

Sun, Mar 25 2018, 7:59 pm

We actually did just that- bought a small house - lived in it for 6 yrs- did a cash out refi and added a story. We were able to do that because we had bought a foreclosure when the market was really low. When we refinanced the value of the house raised significantly and we took all that cash out. We also paid tons towards the principle because interest rates were so low that our payemwnt were low and we had extra cash
I don’t think you can do that now. The housing market has risen and I doubt the value of the house will increase by 80k over the next five years

amother

Seagreen

Sun, Mar 25 2018, 8:10 pm

amother wrote:

there are mortgage calculators that will show you exactly how much equity you will have in your house given the relevant inputs. https://www.myamortizationchart.com/

hint: you barely touch the principal in the first 5 years.

amother

Sienna

Sun, Mar 25 2018, 8:20 pm

Op, as others have said above, this is likely a bad idea.

1. You will hardly touch the principle in the first few years pf the loan.
2. Nobody knows for sure, but interest rates will probably be higher in 5 years.

You are better off going for a house you can afford now.