EP 26: Money tight :( Should I refinance?

Updated: Jul 13, 2021




It depends, but consider the pros and cons...


The biggest downside to refinancing is that it costs money. Not only does the actual refinance cost but in some cases you are stretching your payments out for a longer time period. What you're doing is taking out a new mortgage to pay off the old one - so you'll have to pay most of the same closing costs you did when you first bought the home, including origination fees, title insurance, application fees and closing fees (www.mortgageloan.com). You should avoid refinancing if it takes too much time for you to recoup the new loan's closing costs. This time is known as the break-even period or the number of months to reach the point when you start saving. At the end of the break-even period, you fully offset the costs of refinancing (www.investopedia.com).


One of the first reasons to refinance is to lower your monthly payments, duh. There are a list of other reasons, but the second is to do a cash out refinance, this allows you to access a large chuck of money without selling your home. You might need the cash to start a business or pay for a child's education. Keep in mind, though, the cash you take out will cost you more in interest over the life of your new loan, but not necessarily more than other financing options would cost you www.bankofamercia.com.


I it was 2014, my second child was on the way. Child care aint cheap, that can be an entire post in an of itself. I had recently stopped teaching and opened up an insurance agency. My wife, an actress, didn't have consistent income. I liquidated my teaching pension and used all my wedding money up, lol. Multiunit refinance to the rescue, lol! In short, to save money, we 1) moved in with my in-laws, 2) raised the rent, and 3) refinanced. All in all, we were able to net approximately $1,100/month...this was clutch!


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