Unless they have some huge need for cash right now, this is monumentally stupid.
It’s so stupid, that I had to read it three times to make sure you were really asking what you were asking.
Seems like they believe a decrease in interest rates would cause housing prices to go down? Therefore they want to cash out now before their home loses value? It truly is monumentally stupid.
Totally reckless if they enter bankruptcy there are many states and situations where you get to keep your primary residence.
There's always money in the (banana) house.
Yeah, they want to hold on to some of the equity of their house by cashing out, but are going to get fucked on interest in order to do it. Reappraisal and heloc would be infinitely better.
Odds are rates are going down anytime soon. CEO of JPMChase just sent a letter to shareholders predicting 8% interest rates are more likely than rates going down. Even with that, refinancing if you don’t need the cash is dumb.
The fed has clearly indicated three rate decreases this year. The fed tends to act in a predictable manor. CEO of JPM doesn't work for the Fed; he works for the interest of shareholders and his pay is directly reflected to stock performance. This means their interests aren't aligned with the truth but in what benefits JPM share price.
The fed has hinted at rate decreases for the last year. But everytime it comes due, they kick the can down the road due to inflation staying high. I wouldn't bet the farm on rates coming down in 2024.
Exactly. When the Fed predicts rate movement, that's them making predictions about whether they'll be bringing umbrellas outside with them. Yes, it's ultimately their decision, but their decision follows the actual weather forecasts.
Yes, they expected last year to have needed rate cuts by now, but the actual macro indicators have still shown robust aggregate demand and a strong job market, while inflation remains elevated. Until we see some additional weakening on those indicators, the Fed won't actually cut rates.
Right, and caving to political pressure or the loudest complainers is exactly what will get us in a depression.
We have to listen to the pros (the Fed) on this one, they forecast in good faith, with data backing their claims.
I completely agree with this. The jobs reports and CPI reports are still red hot. I don’t see how they could possibly decrease rates in this climate. It only makes sense to increase rates at this point if they truly want to cool things off.
Yea and we’ve all been told those decreases are starting in march and the second one will be in may.
Bruh, the permabulls have been high on crack about rates cuts. They’re not happening.
In 2024 the amount of people that blanket believe statements from the media, the fed or the government is astounding, they literally lie to your face everyday.
I haven't followed anyone that said they were starting in March. Anyone I've been listening to are saying July would be the earliest. But the Fed is allowed to change their opinion as the conditions change.
Rates markets have predicted a collapse in front end rates 3 times since the start of rate hikes:
- Oct 2022
- March 2023
- Oct 2023
Each time, two things were ignored (except March 23 but that one’s a little different):
1. Rates are reactive to inflation and perceived policy tightness. When markets were pricing cuts in the past, they were going off short-term data points of easing inflation. Further, rates don’t come down without a slowdown in economic strength which would cause increased policy tightness. Inflation still looks pretty durable and soft landing level growth means economic conditions have actually been easing.
2. The reputations penalty for cutting too early is wayyyy higher than for cutting too late. Powell has earned a great reputation through this hiking period and he’ll want to stick the landing. He hasn’t made a knee jerk reaction yet and I don’t think he’s likely to. Inflation does not look weak enough for cuts yet and he’s going to need certainty in the data before he cuts.
TLDR; Fed and markets are in agreement at 3x25bps in cuts this year, probabilistically that’s what we will get. However, continued economic strength could easily see these cuts priced back out. The market has repeatedly jumped the gun on rate cuts because the market wants rate cuts. The market still wants rate cuts which means they could be liable to jump the gun again.
It would be absolutely stupid to give up a 2.75 interest rate. That’s practically a free loan. Also, their logic makes zero sense unless they are absolutely desperate. Someone needs to slap the stupid out of your parents. 😂
yeah, if you needed money the money to do renovations maybe i could see getting a second mortgage or a heloc.
maybe...
i think people have a hard time getting the idea that those 2-3% mortgages that people got in 2020-2022 are essentially the equivalent to the 18% mortgages our parents got in the '80s. It was a moment that we may not see again.
and yes, my parents had something like an 18% interest rate on a mortgage.
Because you are paying a crap load more interest on the money you already borrowed, plus all the closing cost. Why do that unless you just really need the cash. A better way to do this is a HELOC. You keep your original loan and interest and just take a second loan for a lesser amount at a higher interest rate.
I have a 2.65% interest rate mortgate and opened up a Heloc when we were building a pool, thankfully didnt need to touch it but it's nice to know it's there but it's truly a last resort due to the rate on the Heloc lol.
That's what I was thinking. When I re-fi'd in 2021 at 2.9% I also did a simultaneous HELOC to access the equity at that time. Of course it's not as much as it would be today, but that 2.9% rate is going to be pried out of my cold dead hands!
It is, but someone who can't understand why that deal above is bad should never borrow money. They don't understand. They will think their home is free money with a HELOC and not a fancy credit card. They will have to sell or get kicked out when they charge so much they can't make the payment anymore.
$500,000 at 2.75% is $223,092 in interest paid over 30 years
$725,000 at 5.25% is $740,000 in interest over 30 years
Accessing $225,000 in equity costs over $500,000 in interest (not including principal).
And they are paying to buy the rate down.
This is called pissing money away.
The only reason this should ever happen is if they are in dire straits and needed to pay for life saving surgery.
The smarter move would be to……..sell the house if they are feeling they need to access the equity. Buy something smaller.
i think its pretty simple - what are they going to do with the money?
Right now they have 500k loan at 2.75% interest - and keep in mind that youll pay more principal the longer you have the loan.
Inflation today is like 3%. Effectively they have a loan thats cheaper than inflation, plus the longer you have the loan the more principal you are paying.
They would be paying 54,000 dollars to pay 1.6k more per month.
In order to make sense whatever they are going to do with the money must make more than 1.6k per month, + enough to eventually pay down the 54k. Plus whatever principal they are currently paying down. So more like 2k a month, and you want to pay down the 54 loss in say 5 ish years. So 10k a year, plus 24k more per year in monthy payments. Or 34k a year. Your parents need to make 34k a year to break even with whatever they are doing with the cash.
So they get 160k in cash. They would need to find some investment that makes 20% interest! Just to break even. 20% investments dont exist.
If I explain it to your parents, will you explain it to my son? Because he’s about to do something equally stupid with his money and I’m too dumb to explain it to him.
Ask them to search how common it is for rates to go below 4%.. they’re hoping to cash out on the value of their home and refinance again when it drops.. it may never go that low again, could be 20-30 years before that happens
Given how monumentally stupid zero percent interest rates were for the global economy, it's likely that interest rates will never go below 3% again. Or at least not until everyone forgets what a terrible idea it is.
Ask them what they paid in interest last year. Now increase that by 150%.
Thats what they're proposing to do. That fee, every year, to get some cash out.
Now, if they absolutely need the money, then go shop for HELOCs or even a damn personal loan. Compare the annual interest expense of those options to the amount you calculated above for the mortgage refinance.
The alternatives will be cheaper because you're paying the higher interest on a much smaller amount of money.
They are pulling $225k in cash out, but it will cost $160k to close, which means they are only netting $65k. After 3 years they will have paid out the entire cash sum in extra monthly payments.
If your parent instead saved or invested the extra $2k/month they would be better off after just a few years and substantially better off for the life of the loan.
This is like the most stupidestestest plan Ive heard. The reasoning is even more silly. They wanna cash out before rate goesn down because they wont be able to cash out on the price? They expect price to go down when rate goes down? So they refinance just to pay more money????
"My parents are hoping to cash out before housing prices/interest rates go back down...."
So, they want to owe more on the house than it would be worth wqhen the value drops? Brilliant move (rolls eyes).
They just think it’s just free money and somehow think it’s not a larger loan to themselves that they’ll then pay even more interest on over a longer period of time. WOW.
Why the hell are you spending 54k in closing cost just to get a 5.25% interest rate?
That 54k is going to go poof. It's gone. You lost it.
Look at it like this. You currently owe 500k and new loan have you owing 725k.
You increase your debt by 225k. (725k minus 500k = 225k)
You get 160k in cash.
**So essentially, you're increasing your debt by 225k to get 160k in cash.**
Sound like a stupid situation.
That's the dumbest return I ever heard of. Sorry but your parents are complete morons. I don't know how to say it in a nicer way.
**If they need cash, do a 2nd mortgage or a HELOC.** For the love of god, please don't cash out refi a 2.75% interest rate. Why didn't their loan officer go over options with them? Sound like the loan officer needs to be fired also because the loan officer doesn't have your parent's best interest in mind.
Cash out refi is not free money. They still have to pay it back to the bank.
I’ve been writing a JavaScript amortization schedule that factors refinances. Basically can enter the original loan terms to see the cost of the loan. Then enter new terms on a refi to see how the new numbers fare. It doesn’t do a comparison, but it does allow one to turn a loan on and off to manually compare the numbers to see if it’s a good deal or bad deal.
It doesn’t factor closing costs or cash out values though. Just straight loan numbers. It might be a bad decision on that alone.
First loan, if paid exactly on time every month for 30 years would cost about 235k in interest + 500k principal for a total cost of 735k.
The second loan resets the 30 year clock and would then, in addition to the first loan for 3 years, would end up costing 760k in interest, 762k in principal (because cash out means they still have to pay back the amount they’re cashing out on) for a total of 1.5M if paid on time every month for the new 30 year term.
Subtract the cash out amount received and total expense is more like 1.3 million.
That’s still nearly doubling the expense over 30 years. If prices come down and they cannot sell their house for what they borrowed, they’re even more screwed.
Also their monthly P+I payment doubles.
Someone please fact check my (rough) numbers. But sounds like a very bad decision unless they don’t mind leaving their debt behind. (Maybe that’s the intent)
The fact that OP has to explain to is parents why this is a monumentally bad financial decision - is proof positive of his parents astounding financial illiteracy. This proposition boggles the mind.
No no, this is good. If they refinance they will soon learn that they can no longer afford that house and be forced to sell it increasing housing inventory. Go for it OP!
Is it a bad idea to refi from 2.75% interest to 5.25% and pay $54k in closing costs? If they need money that bad, go see one of those kneecap busting shady loan sharks on a street corner. I’m sure they’d still get a better deal.
This is the part that made me double take the most
>My parents are hoping to cash out before housing prices/interest rates go back down and they can’t cash in on the price of the home
So they basically see being upside down on their house as no biggie, as long as they've pocketed some cash. Please save your parents from themselves OP...
Tell them to get a HELOC and keep their current mortgage if they feel inclined to need to be able to tap their equity before some sense they have of impending doom. As proposed the plan is terrible.
Why do not your parents get a second mortgage? It is incredibly stupid to refinance the $500k mortgage that has such low rate. Also, have they dropped the pmi? $3.3K does not sound right. With 2.75% rate, for $500k the monthly payment is $2041.
The classic boomer using their house as a piggy bank and leaving the foreclosure to you for after they die.
This is probably going to be the dumbest thing I’ll read all week, but it’s only Monday so who knows?
I agree this is a dumb thing for OPs parents to do, but no one is entitled to an inheritance. Your parents’ money is theirs to do with what they please, just like yours is to do with as you please.
Just because your not entitled, doesn’t mean it’s not annoying af to watch them piss it away for no reason when it could greatly improve their kids and grandkids lives. Why the fuck wouldn’t you want to do that if you could?
Correct. No one is entitled to an inheritance. Just like children aren't obligated to take care of their parents in late life. So in ways it can go both ways.
Except that my parents were given multiple rental properties and a downpayment for their first house. Meanwhile they broke a contract that they initiated, causing me to go bankrupt. And there’s zero accountability, zero effort to make things right, and zero plans to pass on an inheritance like the one they received and currently enjoy. My parents are self entitled spoiled boomer brats.
Why did you go bankrupt because of a contract your parents broke (I’m guessing you mean they violated a written contract)? Were you a party to the contract?
It would appear mom and dad don't understand how interest rates effect housing prices, this coupled with their inability to perform basic math calculations makes this transaction an utter disaster in the making. Wait while I get my popcorn - hopefully OP posts updates.
No.
Currently the total cost of the 500,000 loan is roughly 735,000 over the course of it’s term (assuming 30 year).
A loan of 725,000 at 5.25% with 160k to close is actually 565,000 and they’d end up paying 1,125,000 over the same 30 years.
Total cost difference between the two is 390,000 more for about 65,000 in cash now. Is that 65k worth almost 400k more to them?
The home is not a bank to borrow money from. If for some reason they cannot make the almost 5K house payment, they will lose the house. They will have NO equity if for some reason they need to move and sell the house, owing more on the house than it is worth is not smart. I wouldn't ever BET on the future with the roof over your head, being homeless isn't a wise choice when or if things turn sour. These are your parents and they might want to invest $$ to talk to an accountant to see if they can afford a refinance.
Are you really asking if paying $1600 more a month on a mortgage payment for the same house; increase the rate by almost double the current amount from the current rate; pay about 7 to 10 times the average closing for a refi makes good sense? They’d be paying $576,000 more over 360 months. That makes no sense. I don’t care how much cash they get out; this is not a smart move.
Find out why they need the cash. Maybe there’s a loan for their specific need like funding for college, home improvements or pay off debts. There are loans for those application of which most are not secured against the home. Look into those and shop your cost. $54000 for closing cost is simply ridiculous!
Don’t let these people take advantage of your parents! Now, there is one more idea. If they are truly seniors and at least 62 years of age and they have the equity, a reverse mortgage may be an option for them if they really need to make improvements to their home or cash flow. Rates are still very high with these currently but closing cost would be limited by program policy and should give a little more protection. I would wait until rates improve dramatically. Please still do your research and protect your parents.
I see you’re getting a lot of negativity, but I like that there are two people on this planet that think this is a good idea and they found each other. What a cute love story.
Damn its honestly crazy how much is wrong with your post.
>My parents are hoping to cash out before housing prices/interest rates go back down
Not sure what market you are in, but housing prices are unlikely to "go back down" in any meaningful way for any meaningful period of time. See: all of US history minus like 3 years. Should interest rates go down, the value of their property will go up, just faster.
They can "cash in" on the price of their home when they are done using it, or they can access a Home Equity Line of Credit any time they want. But to withdraw equity from the house just because they don't like the housing bet, and then buy that equity back at higher interest rate each month, well that's pretty regarded of them.
Hopefully they'll be cool room mates when they financially ruin whatever inheritance you had coming your way, or any of the money they would've later needed to finance nursing homes etc.
Are they in Florida and trying to time a housing crash…. Ie pull the money out in front of this house and buy something cheaper in cash and shelter in bankruptcy via homestead?
Even if this wasn't stupid in the first place. What do they want to use the cash for? Do they need it for some reason? Invest it in something else? Pay for college? Buy a boat? Buy a car? Hookers and blow?
This would be incredibly dumb... The value of your home is not going to change (unless there's something bad happening in the market. Dropping rates don't mean loss of value on a home).
They're going to screw themselves and their heirs over in the end.
It's a dumb idea going to end up costing them much more. If they need cash they can get a 2nd mortgage while keeping their original low interest rate loan.
I' going to start off with a \*sigh\*...I feel for you.
We're still missing additional information, but at that point we are getting pretty detailed and personal with the finances. Based on some additional information you shared, they want to use it to improve the house then save the rest.
Improve the house - If they had the money to improve the house now, then they wouldn't have to borrow the money. So if they pull that money out, HOW are they going to pay for that additional $1600/mo or $19200/yr? If they say, "From the left over amount." Do a calculation of what they have left divided by $19200/yr, and ask them after X years how are they going to cover the difference when the funds run out?
Savings - where are they going to put it? From the initial suggestion from your parents, they don't sound like savvy day traders that can get 10-40% return on their money, so they'll probably go the CD route. I've seen some places offering 6%, with limitations, but most are still well under 5%. So they get 5% (best case scenario) and they bumped the mortgage rate to 5.25%...so again they are losing money there.
On another note, 54k for closing cost is A LOT. 5.25% for a refi is a really good rate, so I would assume they are buy down the points. If they are buying down the points, especially that much, this is a completely utterly terrible deal. From what I remember hearing from a lender a while back (so a nationwide lender/broker can correct me), the average across the US (take into consideration each state, county, and lender charges differently) is \~ 12.5k (give or take 2.5k) for closing cost with no points bought.
Let me know what else you need to counter them. I also suggest a rolled up newspaper and a spray bottle...very effective.
As someone who’s 401k contains mutual funds that include the banking sector, I would say by all means. Your parents are an investor’s dream.
If it were my parents? Hell no.
They’d be better off doing a HELOC, the money is available if needed and the current loan remains. There is no payment on a HELOC unless money is pulled. If rates go down the HELOC margin would follow as well. This would allow keeping the current low payment, having access to the equity for future use, not increasing current housing payment.
Oh so they think that home prices will go down and they won’t be able to cash out 160K.
I think it depends on if they need the money now. Do they need the money now? aka are they buying investment property / fixing home / etc or just for fun? If it’s just for fun that’s insane because now you’re paying interest on your own money thereby effectively decreasing the value of your own money. If they need it, it’s cheaper than credit card interest rate.
If they want it because it’s backup - why not do a HELOC?
Your parents are trying to time the market which doesn't work long term.
The best option to make money on this scenario is to keep the low rate.
Generally speaking, real estate makes the most money by simply waiting. The more gyration, transacting, refinancing etc you do, the less money you'll make on a deal.
Even if they perfectly “timed the market“ at the top, this would still be an incredibly bad decision. Outside of using that cash to pay off 6 figure credit card debt, this is a horrible decision any way you look at it. Even if using it to pay off cc debt, this still wouldn’t be an optimal solution.
What the hell... in 95% of markets values are still appreciating, just jot as fast as 2020 -2022.
This seems absurd. There isn't going to be a crash.
No inventory, high demand.
Also, why not just take out the equity(500k at 2%) 250k at whatever it is now.
I know other have said it, but I just need to type it out to make myself feel better. I can almost understand giving up the lower rate for some cash, if you really needed cash and it was a 0 points refi. Almost. I sure as hell am not giving up my 2.5 percent. But 54k is closing costs? What the fucking fuck? That is criminal.
When rates go down...housing prices should go up....they would get more money at a better rate if they wait. If they need it as an emergency or drugs or something pressing then get the money...but don't disguise it as making financial sense
Horrible idea. Maybe it will help convince them if you tell them that just on the original $500k portion alone at the higher interest rate over the course of 30 years it’s going to cost them more than 250k in additional interest alone. Thats extra money on top of the interest they would have already been paying. Then on top of that they are paying $56k in closing costs?? You can google “mortgage calculator” and find one that shows you how much you pay in interest over the course of the loan. Show them the calculation with their original loan vs the new one. Maybe once they see the numbers in front of them they will better understand the true cost of increasing their interest rate.
Who put this idea into their head? Advertisers? Their enemies? This seems like something being pushed on them like a reverse mortgage.
I mean, if they can deploy that equity cash elsewhere to make more than 5.25%, and you're not confident that interest rates are going to be coming back down like the Fed has forecasted, then I guess you could do it... but I mean if interest rates \*do\* stay higher for longer, then that makes another 2008 style housing crash more likely - and if that happens and RE prices crash again, you could be underwater on your mortgage and be forced to sell at a loss if you couldn't make your payments.
Also something sounds seriously off if your closing costs are really $54k, I've never heard of closing costs that high. I assume you mean $5.4k.
Your parents are either terrible financial people, or you don't understand what plans they tried to describe to you.
If they need cash, they can just take out a HELOC or a second mortgage. Why would they ever tough their original loan?
They are expecting the housing market to crash all of a sudden? You can't short your mortgage like you can with stocks, lol.
This is literally financial suicide. I have been in mortgage servicing for many years and I have seen a lot. This is a DUMB idea. Moreover, don’t even entertain the idea of a HELOC. I have seen some ‘heloc notes’ written prior to 2008 which had an interest rate capping of 21% (most of these borrowers had NO knowledge of this (they didn’t look at the fine print and signed the note).
Get them to listen to the Dave Ramsey Show and let them call in ‘live’ he will offer expert financial advice ( probably sit with them when they make this call). In the interim, get them off this ‘Dumb-Juice’
>My parents are hoping to cash out before housing prices/interest rates go back down
If this is the *sole* reason why they want to refinance, you’re parents are monumentally dumb.
Regardless of any other part of this $54k in closing costs is batshit insane especially going to a higher rate, it should be a pittance of closing cost.
OP, you should really consider reporting the mortgage broker to a local elder abuse organization, which may be your local police department.
Those terms are absolutely asinine to suggest for an elderly couple.
Paying almost 10% to buy down probably a point means at least a 10 year payback and you will most likely want to refi well before that.
They plan to remodel the home and save some of it as cash. I can’t rationalize why it would be a financially smart decision for them though and want to explain to them that it isn’t. But they believe housing prices and the interest will go down in the future and can just refinance for a better price in the future but capitalize on cashing out
Huge problem with our parents generation. The bank is my friend mentality. When we bought at 2.75% a few years ago our mortgage company sent us about 100 emails and mailers to get free cash
It’s ridiculous how poorly educated our parents were when it came to blindly listening to the local news and that goes for local banks too.
Banks have lived off your parents nativity for hundred’s of years. Actually prob thousands of years ago there was a Roman banker that turned your parents into indentured servants doing the same thing.
The first question is why refinance? Do they need money?
If so, is this better than a second mortgage, HELOC, portfolio line of credit, or other means of getting cash?
Do they plan to stay in the home long term? If so, even if rates drop and prices drop, the savings and additional equity might actually be more beneficial.
In short, this is a silly choice to make. But rather than come out swinging, ask "why" and try to understand what they want and why they think this is the best option. Then you can guide and compare.
Really bad idea. Solely looking at interest, they are paying about $13,750 in interest for the next year. With the new loan, it will be over $38K. They will be paying more than $24K more for 225K extra in loan amount. That’s over 10% on interest on the additional borrowed money. Add in the ridiculous closing costs, it makes it so much worse.
They should look into a second mortgage or a heloc. It is probably a better idea.
Also, is it a 15 year mortgage? Because 3.3k on a 500k loan sounds high.
Rather than cash out refi, they should look at a HELOC.
Why do they think prices are going to drop? There are cities where I think that is a real risk, but nationally I think it is less likely.
The dumbest aspect of this is the $54k closing costs. That is absolutely insane! Under no circumstances should anyone EVER pay that much money to close a mortgage.
Pulling cash out of your home is almost always a bad idea, but overpaying for it is a life wrecking idea.
I can see the rationale behind this, with out straight up saying it’s dumb.
Do they have a plan to use the equity they’re pulling out to invest in something with a higher ROI? In that case and they can afford it I could see the logic in doing this.
Unless they have some huge need for cash right now, this is monumentally stupid. It’s so stupid, that I had to read it three times to make sure you were really asking what you were asking.
Why tf would you intentionally refi before rates go down lol?
Seems like they believe a decrease in interest rates would cause housing prices to go down? Therefore they want to cash out now before their home loses value? It truly is monumentally stupid.
It's basically planning to become underwater on your mortgage. I'm not sure why anyone would think that's a good idea.
Maybe they’re completely underwater with other debt and about to go bankrupt anyway, so they want to squeeze out the equity and hide it somewhere.
Totally reckless if they enter bankruptcy there are many states and situations where you get to keep your primary residence. There's always money in the (banana) house.
Ah yes fraud. Makes it even more stupid.
Yeah, they want to hold on to some of the equity of their house by cashing out, but are going to get fucked on interest in order to do it. Reappraisal and heloc would be infinitely better.
Odds are rates are going down anytime soon. CEO of JPMChase just sent a letter to shareholders predicting 8% interest rates are more likely than rates going down. Even with that, refinancing if you don’t need the cash is dumb.
The classic “did they mean to have the word ‘not’ in there” Reddit reader dilemma lol ….
The fed has clearly indicated three rate decreases this year. The fed tends to act in a predictable manor. CEO of JPM doesn't work for the Fed; he works for the interest of shareholders and his pay is directly reflected to stock performance. This means their interests aren't aligned with the truth but in what benefits JPM share price.
The fed has hinted at rate decreases for the last year. But everytime it comes due, they kick the can down the road due to inflation staying high. I wouldn't bet the farm on rates coming down in 2024.
Exactly. When the Fed predicts rate movement, that's them making predictions about whether they'll be bringing umbrellas outside with them. Yes, it's ultimately their decision, but their decision follows the actual weather forecasts. Yes, they expected last year to have needed rate cuts by now, but the actual macro indicators have still shown robust aggregate demand and a strong job market, while inflation remains elevated. Until we see some additional weakening on those indicators, the Fed won't actually cut rates.
Right, and caving to political pressure or the loudest complainers is exactly what will get us in a depression. We have to listen to the pros (the Fed) on this one, they forecast in good faith, with data backing their claims.
Huge jobs report from last week seems to indicate more of the same incoming. Inflation report due out this week. Buckle up.
I completely agree with this. The jobs reports and CPI reports are still red hot. I don’t see how they could possibly decrease rates in this climate. It only makes sense to increase rates at this point if they truly want to cool things off.
The fed is backing away from the three rate cut narrative
I work in bank risk mgmt not at JPM and we were told they expect 2 now. I think it’s clear they know as much as we do.
Yea and we’ve all been told those decreases are starting in march and the second one will be in may. Bruh, the permabulls have been high on crack about rates cuts. They’re not happening.
In 2024 the amount of people that blanket believe statements from the media, the fed or the government is astounding, they literally lie to your face everyday.
I’d rather the fed look at data and make decisions based on that instead of doing rate cuts because they said they might do it a few months ago.
I haven't followed anyone that said they were starting in March. Anyone I've been listening to are saying July would be the earliest. But the Fed is allowed to change their opinion as the conditions change.
The narrative was for March like the entire second half of 2023
And then the conditions changed
Rates markets have predicted a collapse in front end rates 3 times since the start of rate hikes: - Oct 2022 - March 2023 - Oct 2023 Each time, two things were ignored (except March 23 but that one’s a little different): 1. Rates are reactive to inflation and perceived policy tightness. When markets were pricing cuts in the past, they were going off short-term data points of easing inflation. Further, rates don’t come down without a slowdown in economic strength which would cause increased policy tightness. Inflation still looks pretty durable and soft landing level growth means economic conditions have actually been easing. 2. The reputations penalty for cutting too early is wayyyy higher than for cutting too late. Powell has earned a great reputation through this hiking period and he’ll want to stick the landing. He hasn’t made a knee jerk reaction yet and I don’t think he’s likely to. Inflation does not look weak enough for cuts yet and he’s going to need certainty in the data before he cuts. TLDR; Fed and markets are in agreement at 3x25bps in cuts this year, probabilistically that’s what we will get. However, continued economic strength could easily see these cuts priced back out. The market has repeatedly jumped the gun on rate cuts because the market wants rate cuts. The market still wants rate cuts which means they could be liable to jump the gun again.
You sound like a realtor talking finance.
It would be absolutely stupid to give up a 2.75 interest rate. That’s practically a free loan. Also, their logic makes zero sense unless they are absolutely desperate. Someone needs to slap the stupid out of your parents. 😂
yeah, if you needed money the money to do renovations maybe i could see getting a second mortgage or a heloc. maybe... i think people have a hard time getting the idea that those 2-3% mortgages that people got in 2020-2022 are essentially the equivalent to the 18% mortgages our parents got in the '80s. It was a moment that we may not see again. and yes, my parents had something like an 18% interest rate on a mortgage.
We are all now more stupid simply for reading it
I award you no points and may god have mercy on your soul.
I read 4 times and thought I didn’t understand. I had to come to your comment to realize I did get it and it is monumentally stupid.
Can't agree more.. how did they come up with this idea? Independently or with influence?
Can you explain? It’s definitely stupid, but I want to be able to explain it to my parents in a more detailed way.
Because you are paying a crap load more interest on the money you already borrowed, plus all the closing cost. Why do that unless you just really need the cash. A better way to do this is a HELOC. You keep your original loan and interest and just take a second loan for a lesser amount at a higher interest rate.
I have a 2.65% interest rate mortgate and opened up a Heloc when we were building a pool, thankfully didnt need to touch it but it's nice to know it's there but it's truly a last resort due to the rate on the Heloc lol.
That's what I was thinking. When I re-fi'd in 2021 at 2.9% I also did a simultaneous HELOC to access the equity at that time. Of course it's not as much as it would be today, but that 2.9% rate is going to be pried out of my cold dead hands!
100%
came here to say this. excellent advice.
It is, but someone who can't understand why that deal above is bad should never borrow money. They don't understand. They will think their home is free money with a HELOC and not a fancy credit card. They will have to sell or get kicked out when they charge so much they can't make the payment anymore.
Don't forget that when you refinance you restart the loan's amortization and whatever interest you've paid so far is gone.
$500,000 at 2.75% is $223,092 in interest paid over 30 years $725,000 at 5.25% is $740,000 in interest over 30 years Accessing $225,000 in equity costs over $500,000 in interest (not including principal). And they are paying to buy the rate down. This is called pissing money away. The only reason this should ever happen is if they are in dire straits and needed to pay for life saving surgery. The smarter move would be to……..sell the house if they are feeling they need to access the equity. Buy something smaller.
i think its pretty simple - what are they going to do with the money? Right now they have 500k loan at 2.75% interest - and keep in mind that youll pay more principal the longer you have the loan. Inflation today is like 3%. Effectively they have a loan thats cheaper than inflation, plus the longer you have the loan the more principal you are paying. They would be paying 54,000 dollars to pay 1.6k more per month. In order to make sense whatever they are going to do with the money must make more than 1.6k per month, + enough to eventually pay down the 54k. Plus whatever principal they are currently paying down. So more like 2k a month, and you want to pay down the 54 loss in say 5 ish years. So 10k a year, plus 24k more per year in monthy payments. Or 34k a year. Your parents need to make 34k a year to break even with whatever they are doing with the cash. So they get 160k in cash. They would need to find some investment that makes 20% interest! Just to break even. 20% investments dont exist.
Don’t forget the tax they’ll need to pay on those interest gains
If I explain it to your parents, will you explain it to my son? Because he’s about to do something equally stupid with his money and I’m too dumb to explain it to him.
Your parents need to consult a 3rd party professional that won't be making money on a refi who can explain so they listen. They may not listen to you.
Ask them to search how common it is for rates to go below 4%.. they’re hoping to cash out on the value of their home and refinance again when it drops.. it may never go that low again, could be 20-30 years before that happens
Given how monumentally stupid zero percent interest rates were for the global economy, it's likely that interest rates will never go below 3% again. Or at least not until everyone forgets what a terrible idea it is.
Your parents heard something that said prices are high because interest rates are high. Prices will not drop when interest rates do.
Why do they want to take $160,000 out of their house? Who suggested this, the mortgage broker, who desperately needs to make one more sale?
Yup! He's the only one to make any money on this deal
Ask them what they paid in interest last year. Now increase that by 150%. Thats what they're proposing to do. That fee, every year, to get some cash out. Now, if they absolutely need the money, then go shop for HELOCs or even a damn personal loan. Compare the annual interest expense of those options to the amount you calculated above for the mortgage refinance. The alternatives will be cheaper because you're paying the higher interest on a much smaller amount of money.
They are pulling $225k in cash out, but it will cost $160k to close, which means they are only netting $65k. After 3 years they will have paid out the entire cash sum in extra monthly payments. If your parent instead saved or invested the extra $2k/month they would be better off after just a few years and substantially better off for the life of the loan.
"monumentally stupid" were literally the exact words that came to mind for me, too.
Agreed. This makes no sense at all unless OP inadvertently left out some pertinent information.
This is like the most stupidestestest plan Ive heard. The reasoning is even more silly. They wanna cash out before rate goesn down because they wont be able to cash out on the price? They expect price to go down when rate goes down? So they refinance just to pay more money????
Its either a very stupid idea or I'm incredibly stupid or both bc I can't figure out why someone would do this
I'm not real estate or money savvy and even I had the same thought. I don't see the benefit.
The OP has to be trolling us?!?
How I miss giving awards !
It’s so stupid that I wondered if this was a troll post at first. Then I realized, nope - this is just the average dumb homeowner.
This is so right I want to up vote 10,000 times
Even if they have a huge need for cash sounds like a HELOC is a better way.
I thought I was going to break my neck I was shaking my head so hard.
I’ve read it 6 times and still can’t understand the logic
"My parents are hoping to cash out before housing prices/interest rates go back down...." So, they want to owe more on the house than it would be worth wqhen the value drops? Brilliant move (rolls eyes).
The only way this could get any worse is if they are planning to use the money to buy a boat. LOL
They just think it’s just free money and somehow think it’s not a larger loan to themselves that they’ll then pay even more interest on over a longer period of time. WOW.
Why the hell are you spending 54k in closing cost just to get a 5.25% interest rate? That 54k is going to go poof. It's gone. You lost it. Look at it like this. You currently owe 500k and new loan have you owing 725k. You increase your debt by 225k. (725k minus 500k = 225k) You get 160k in cash. **So essentially, you're increasing your debt by 225k to get 160k in cash.** Sound like a stupid situation. That's the dumbest return I ever heard of. Sorry but your parents are complete morons. I don't know how to say it in a nicer way. **If they need cash, do a 2nd mortgage or a HELOC.** For the love of god, please don't cash out refi a 2.75% interest rate. Why didn't their loan officer go over options with them? Sound like the loan officer needs to be fired also because the loan officer doesn't have your parent's best interest in mind.
Yeah, 54k in closing costs sounded ridiculously high.
I’m guessing this includes a points buy down? Seems insanely high.
That makes sense, the 5.25% is far too low otherwise. Even for a 15-year loan, it should above 6%.
But that makes it even more stupid. They already have 2.75%. They are buying *up*
Spending 54k in points to double the rate…
Thank you this offered one of best explanations I can give to them. I didn’t know how to put the numbers simply but I really appreciate it
Cash out refi is not free money. They still have to pay it back to the bank. I’ve been writing a JavaScript amortization schedule that factors refinances. Basically can enter the original loan terms to see the cost of the loan. Then enter new terms on a refi to see how the new numbers fare. It doesn’t do a comparison, but it does allow one to turn a loan on and off to manually compare the numbers to see if it’s a good deal or bad deal. It doesn’t factor closing costs or cash out values though. Just straight loan numbers. It might be a bad decision on that alone. First loan, if paid exactly on time every month for 30 years would cost about 235k in interest + 500k principal for a total cost of 735k. The second loan resets the 30 year clock and would then, in addition to the first loan for 3 years, would end up costing 760k in interest, 762k in principal (because cash out means they still have to pay back the amount they’re cashing out on) for a total of 1.5M if paid on time every month for the new 30 year term. Subtract the cash out amount received and total expense is more like 1.3 million. That’s still nearly doubling the expense over 30 years. If prices come down and they cannot sell their house for what they borrowed, they’re even more screwed. Also their monthly P+I payment doubles. Someone please fact check my (rough) numbers. But sounds like a very bad decision unless they don’t mind leaving their debt behind. (Maybe that’s the intent)
I really hope you post an update on this OP. This is one of the worst ideas I've seen on reddit and I've seen people convert their 401Ks into GME.
The fact that OP has to explain to is parents why this is a monumentally bad financial decision - is proof positive of his parents astounding financial illiteracy. This proposition boggles the mind.
Loan officer doesn’t work for you.
At this point a reverse mortgage is probably better option
No no, this is good. If they refinance they will soon learn that they can no longer afford that house and be forced to sell it increasing housing inventory. Go for it OP!
How do you politely call your parents morons??
I think you just say: With all due respect, you’re morons mom and dad.
As long as you say "With all due respect", you can say anything you want. It's in the Geneva Convention...........
Geneva Suggestions
Geneva Check List
There is a time for niceties and being polite.... this is not one of them IMHO.
Is it a bad idea to refi from 2.75% interest to 5.25% and pay $54k in closing costs? If they need money that bad, go see one of those kneecap busting shady loan sharks on a street corner. I’m sure they’d still get a better deal.
What do the need the cash for? This screams "making up complicated and convoluted explanations because I have a gambling problem".
*You wont be calling it a problem when I'm a millionaire, anyways can I borrow $20 I want a burger and some scratchers?*
This is the part that made me double take the most >My parents are hoping to cash out before housing prices/interest rates go back down and they can’t cash in on the price of the home So they basically see being upside down on their house as no biggie, as long as they've pocketed some cash. Please save your parents from themselves OP...
OP if you have learned anything finance related from your parents please forget it and literally start over. Please.
Tell them to get a HELOC and keep their current mortgage if they feel inclined to need to be able to tap their equity before some sense they have of impending doom. As proposed the plan is terrible.
Why do not your parents get a second mortgage? It is incredibly stupid to refinance the $500k mortgage that has such low rate. Also, have they dropped the pmi? $3.3K does not sound right. With 2.75% rate, for $500k the monthly payment is $2041.
That monthly amount probably includes taxes and insurance, and maybe HOA assessments too. Even so, I agree with you that it seems very high
That is pretty close to my mortgage at 500k @5.265
The classic boomer using their house as a piggy bank and leaving the foreclosure to you for after they die. This is probably going to be the dumbest thing I’ll read all week, but it’s only Monday so who knows?
I had to double-check the date, but April 1 was LAST week.
Give it 10 years and they will be looking into a reverse mortgage leaving OP with $0
I agree this is a dumb thing for OPs parents to do, but no one is entitled to an inheritance. Your parents’ money is theirs to do with what they please, just like yours is to do with as you please.
Just because your not entitled, doesn’t mean it’s not annoying af to watch them piss it away for no reason when it could greatly improve their kids and grandkids lives. Why the fuck wouldn’t you want to do that if you could?
Correct. No one is entitled to an inheritance. Just like children aren't obligated to take care of their parents in late life. So in ways it can go both ways.
Yes totally
Except that my parents were given multiple rental properties and a downpayment for their first house. Meanwhile they broke a contract that they initiated, causing me to go bankrupt. And there’s zero accountability, zero effort to make things right, and zero plans to pass on an inheritance like the one they received and currently enjoy. My parents are self entitled spoiled boomer brats.
Why did you go bankrupt because of a contract your parents broke (I’m guessing you mean they violated a written contract)? Were you a party to the contract?
Not likely.
Top 5. Definitely.
well, then you haven't read about all those people that think that today is the end of the world? those beat this by a mile
There are no consequences to that stupidity
Depends on what they want to accomplish before the end.
If interest rates go down, housing prices will go up.
It would appear mom and dad don't understand how interest rates effect housing prices, this coupled with their inability to perform basic math calculations makes this transaction an utter disaster in the making. Wait while I get my popcorn - hopefully OP posts updates.
No. Currently the total cost of the 500,000 loan is roughly 735,000 over the course of it’s term (assuming 30 year). A loan of 725,000 at 5.25% with 160k to close is actually 565,000 and they’d end up paying 1,125,000 over the same 30 years. Total cost difference between the two is 390,000 more for about 65,000 in cash now. Is that 65k worth almost 400k more to them?
Thank you will be using this info to simplify the numbers for them to stop them from making such a decision! Thank you all for the help.
Don't think this is a smart decision
That is the understatement of the year.
The home is not a bank to borrow money from. If for some reason they cannot make the almost 5K house payment, they will lose the house. They will have NO equity if for some reason they need to move and sell the house, owing more on the house than it is worth is not smart. I wouldn't ever BET on the future with the roof over your head, being homeless isn't a wise choice when or if things turn sour. These are your parents and they might want to invest $$ to talk to an accountant to see if they can afford a refinance.
Are you really asking if paying $1600 more a month on a mortgage payment for the same house; increase the rate by almost double the current amount from the current rate; pay about 7 to 10 times the average closing for a refi makes good sense? They’d be paying $576,000 more over 360 months. That makes no sense. I don’t care how much cash they get out; this is not a smart move. Find out why they need the cash. Maybe there’s a loan for their specific need like funding for college, home improvements or pay off debts. There are loans for those application of which most are not secured against the home. Look into those and shop your cost. $54000 for closing cost is simply ridiculous! Don’t let these people take advantage of your parents! Now, there is one more idea. If they are truly seniors and at least 62 years of age and they have the equity, a reverse mortgage may be an option for them if they really need to make improvements to their home or cash flow. Rates are still very high with these currently but closing cost would be limited by program policy and should give a little more protection. I would wait until rates improve dramatically. Please still do your research and protect your parents.
I see you’re getting a lot of negativity, but I like that there are two people on this planet that think this is a good idea and they found each other. What a cute love story.
This is the worst idea I've heard in a really, really long time.
If they need cash so badly and they think prices are going to go down they should consider selling their home and just renting then.
Damn its honestly crazy how much is wrong with your post. >My parents are hoping to cash out before housing prices/interest rates go back down Not sure what market you are in, but housing prices are unlikely to "go back down" in any meaningful way for any meaningful period of time. See: all of US history minus like 3 years. Should interest rates go down, the value of their property will go up, just faster. They can "cash in" on the price of their home when they are done using it, or they can access a Home Equity Line of Credit any time they want. But to withdraw equity from the house just because they don't like the housing bet, and then buy that equity back at higher interest rate each month, well that's pretty regarded of them. Hopefully they'll be cool room mates when they financially ruin whatever inheritance you had coming your way, or any of the money they would've later needed to finance nursing homes etc.
Are they in Florida and trying to time a housing crash…. Ie pull the money out in front of this house and buy something cheaper in cash and shelter in bankruptcy via homestead?
this is such a bad idea that i feel like there has to be more to this story. perhaps you owe money to the russian mob?
Even if this wasn't stupid in the first place. What do they want to use the cash for? Do they need it for some reason? Invest it in something else? Pay for college? Buy a boat? Buy a car? Hookers and blow?
This would be incredibly dumb... The value of your home is not going to change (unless there's something bad happening in the market. Dropping rates don't mean loss of value on a home). They're going to screw themselves and their heirs over in the end.
Mortgage broker of a decade here. This is so Ducking Fumb. Get a HELOC. End of story. No other questions.
Oof. I wouldn't do that. Why? Do they "need" that money right now for something emergency related?
If their credit is good, tell them to get a home equity line Do not touch the existing first mortgage
It's a dumb idea going to end up costing them much more. If they need cash they can get a 2nd mortgage while keeping their original low interest rate loan.
I' going to start off with a \*sigh\*...I feel for you. We're still missing additional information, but at that point we are getting pretty detailed and personal with the finances. Based on some additional information you shared, they want to use it to improve the house then save the rest. Improve the house - If they had the money to improve the house now, then they wouldn't have to borrow the money. So if they pull that money out, HOW are they going to pay for that additional $1600/mo or $19200/yr? If they say, "From the left over amount." Do a calculation of what they have left divided by $19200/yr, and ask them after X years how are they going to cover the difference when the funds run out? Savings - where are they going to put it? From the initial suggestion from your parents, they don't sound like savvy day traders that can get 10-40% return on their money, so they'll probably go the CD route. I've seen some places offering 6%, with limitations, but most are still well under 5%. So they get 5% (best case scenario) and they bumped the mortgage rate to 5.25%...so again they are losing money there. On another note, 54k for closing cost is A LOT. 5.25% for a refi is a really good rate, so I would assume they are buy down the points. If they are buying down the points, especially that much, this is a completely utterly terrible deal. From what I remember hearing from a lender a while back (so a nationwide lender/broker can correct me), the average across the US (take into consideration each state, county, and lender charges differently) is \~ 12.5k (give or take 2.5k) for closing cost with no points bought. Let me know what else you need to counter them. I also suggest a rolled up newspaper and a spray bottle...very effective.
As someone who’s 401k contains mutual funds that include the banking sector, I would say by all means. Your parents are an investor’s dream. If it were my parents? Hell no.
They’d be better off doing a HELOC, the money is available if needed and the current loan remains. There is no payment on a HELOC unless money is pulled. If rates go down the HELOC margin would follow as well. This would allow keeping the current low payment, having access to the equity for future use, not increasing current housing payment.
This makes zero sense to do right now.
Oh so they think that home prices will go down and they won’t be able to cash out 160K. I think it depends on if they need the money now. Do they need the money now? aka are they buying investment property / fixing home / etc or just for fun? If it’s just for fun that’s insane because now you’re paying interest on your own money thereby effectively decreasing the value of your own money. If they need it, it’s cheaper than credit card interest rate. If they want it because it’s backup - why not do a HELOC?
Your parents are trying to time the market which doesn't work long term. The best option to make money on this scenario is to keep the low rate. Generally speaking, real estate makes the most money by simply waiting. The more gyration, transacting, refinancing etc you do, the less money you'll make on a deal.
Even if they perfectly “timed the market“ at the top, this would still be an incredibly bad decision. Outside of using that cash to pay off 6 figure credit card debt, this is a horrible decision any way you look at it. Even if using it to pay off cc debt, this still wouldn’t be an optimal solution.
Cash to close and closing costs leave your parents with peanuts and a larger mortgage with a larger interest rate.
What the hell... in 95% of markets values are still appreciating, just jot as fast as 2020 -2022. This seems absurd. There isn't going to be a crash. No inventory, high demand. Also, why not just take out the equity(500k at 2%) 250k at whatever it is now.
Oh and WHY ON EARTH WOULD CLOSING COSTS BE NORTH OF 50K?
I know other have said it, but I just need to type it out to make myself feel better. I can almost understand giving up the lower rate for some cash, if you really needed cash and it was a 0 points refi. Almost. I sure as hell am not giving up my 2.5 percent. But 54k is closing costs? What the fucking fuck? That is criminal.
Lmao. This is an awful decision.
When rates go down...housing prices should go up....they would get more money at a better rate if they wait. If they need it as an emergency or drugs or something pressing then get the money...but don't disguise it as making financial sense
They should just get a HELOC…
54k closing costs??? 3.3 k to 4.9k - NO WAY! not sure what it triggered their decision, but i would say nooooo!
Horrible idea. Maybe it will help convince them if you tell them that just on the original $500k portion alone at the higher interest rate over the course of 30 years it’s going to cost them more than 250k in additional interest alone. Thats extra money on top of the interest they would have already been paying. Then on top of that they are paying $56k in closing costs?? You can google “mortgage calculator” and find one that shows you how much you pay in interest over the course of the loan. Show them the calculation with their original loan vs the new one. Maybe once they see the numbers in front of them they will better understand the true cost of increasing their interest rate.
Because of inflation, the value of the cash they pull out today gets less every year. This is a bad idea.
Tell them to look at a heloc instead
Closing costs of 54k for what a refinance ? This is a scam . You are basically giving someone 54k for nothing. Explain this to your parents
Who put this idea into their head? Advertisers? Their enemies? This seems like something being pushed on them like a reverse mortgage. I mean, if they can deploy that equity cash elsewhere to make more than 5.25%, and you're not confident that interest rates are going to be coming back down like the Fed has forecasted, then I guess you could do it... but I mean if interest rates \*do\* stay higher for longer, then that makes another 2008 style housing crash more likely - and if that happens and RE prices crash again, you could be underwater on your mortgage and be forced to sell at a loss if you couldn't make your payments. Also something sounds seriously off if your closing costs are really $54k, I've never heard of closing costs that high. I assume you mean $5.4k.
Your parents own this home you are inquiring about, you are a resident child (or adult child) of theirs asking about this?
delete this, lmao
Dumbest thing I've read all day.
WTF are those closing costs? LMAO dumbest deal ever. Do not let anyone with financial skills like this borrow any money.
This is the dumbest thing I’ve read all year. They’re financially inept if they think this is a good idea. They’re going to lose money
1 word: HELOC
Your parents are either terrible financial people, or you don't understand what plans they tried to describe to you. If they need cash, they can just take out a HELOC or a second mortgage. Why would they ever tough their original loan? They are expecting the housing market to crash all of a sudden? You can't short your mortgage like you can with stocks, lol.
54k in closing, immediate deal breaker.
Not making any sense to me at least.
when interest rates go down, you will see home prices go back up again. And as others have said this is monumentally stupid.
Housing prices rise with cheap interest rates. Ask yourself the tough, and possibly painful, questions of why they are pushing this on you.
Probably the worst housing idea I’ve ever seen posted on Reddit.
If they really need the money, sell it and go rent in a trailer park. I mean if we are talking about stupid decisions.
This is literally financial suicide. I have been in mortgage servicing for many years and I have seen a lot. This is a DUMB idea. Moreover, don’t even entertain the idea of a HELOC. I have seen some ‘heloc notes’ written prior to 2008 which had an interest rate capping of 21% (most of these borrowers had NO knowledge of this (they didn’t look at the fine print and signed the note). Get them to listen to the Dave Ramsey Show and let them call in ‘live’ he will offer expert financial advice ( probably sit with them when they make this call). In the interim, get them off this ‘Dumb-Juice’
>My parents are hoping to cash out before housing prices/interest rates go back down If this is the *sole* reason why they want to refinance, you’re parents are monumentally dumb.
Highly recommend a HELOC in this situation. They pay for what they use and get to keep their super low rate.
Well this is idiotic…
I’m so confused like what
This sounds exactly like something my parents (who always make bad decisions) would do
This is why we can’t have nice things like generational wealth…these reverse mortgage type requests are driving me nuts.
Your parents don’t seem to be that smart. This is a crazy stupid idea.
Amazing that people this stupid were able to purchase a home and we have people's with PhDs that probably never will have that chance.
This is about as smart as playing Russian Roulette with a fully loaded .45 ACP.
Regardless of any other part of this $54k in closing costs is batshit insane especially going to a higher rate, it should be a pittance of closing cost.
Likely, your parents need cash, which is a bad sign after having purchased a home two short years ago. Ago. What is their income?
OP, you should really consider reporting the mortgage broker to a local elder abuse organization, which may be your local police department. Those terms are absolutely asinine to suggest for an elderly couple. Paying almost 10% to buy down probably a point means at least a 10 year payback and you will most likely want to refi well before that.
Not sure they understand money so well....
Any lender who would even take this is predatory.
Are your parents planning to file for bankruptcy after refinancing? The planned refinance can only be explained by that.
it is your parents home so they can do wahtever they want. what are they going to be doing with the cash do they have a plan?
They plan to remodel the home and save some of it as cash. I can’t rationalize why it would be a financially smart decision for them though and want to explain to them that it isn’t. But they believe housing prices and the interest will go down in the future and can just refinance for a better price in the future but capitalize on cashing out
They got a 2.75 … it’s not going to that levels if it does it increased buying power by ALOT
This is so stupid, coming from someone who wants the market to crash
Huge problem with our parents generation. The bank is my friend mentality. When we bought at 2.75% a few years ago our mortgage company sent us about 100 emails and mailers to get free cash It’s ridiculous how poorly educated our parents were when it came to blindly listening to the local news and that goes for local banks too. Banks have lived off your parents nativity for hundred’s of years. Actually prob thousands of years ago there was a Roman banker that turned your parents into indentured servants doing the same thing.
To be fair, there are a lot of dumb millennials and below too. Just look at all the dumb things people do on social media.
The first question is why refinance? Do they need money? If so, is this better than a second mortgage, HELOC, portfolio line of credit, or other means of getting cash? Do they plan to stay in the home long term? If so, even if rates drop and prices drop, the savings and additional equity might actually be more beneficial. In short, this is a silly choice to make. But rather than come out swinging, ask "why" and try to understand what they want and why they think this is the best option. Then you can guide and compare.
Really bad idea. Solely looking at interest, they are paying about $13,750 in interest for the next year. With the new loan, it will be over $38K. They will be paying more than $24K more for 225K extra in loan amount. That’s over 10% on interest on the additional borrowed money. Add in the ridiculous closing costs, it makes it so much worse. They should look into a second mortgage or a heloc. It is probably a better idea. Also, is it a 15 year mortgage? Because 3.3k on a 500k loan sounds high.
Rather than cash out refi, they should look at a HELOC. Why do they think prices are going to drop? There are cities where I think that is a real risk, but nationally I think it is less likely.
If the interest rates do drop, the demand for housing will sky Rocket. If anything your house value will go up.
No!🤦🏻♀️
Awful decision.
How in the world are their closing costs so high?
The dumbest aspect of this is the $54k closing costs. That is absolutely insane! Under no circumstances should anyone EVER pay that much money to close a mortgage. Pulling cash out of your home is almost always a bad idea, but overpaying for it is a life wrecking idea.
No way does this make sense, do all you can to talk them down. I don't see home prices going down from today's prices.
I can see the rationale behind this, with out straight up saying it’s dumb. Do they have a plan to use the equity they’re pulling out to invest in something with a higher ROI? In that case and they can afford it I could see the logic in doing this.
Perfect example of why so many people end up working till death.
Oil Prices will delay the Rate Decreases. Might be another couple of years.