Pros and Cons of Cash Out Refinance | Refinancing Your Home Mortgage - YouTube

all right matt the mortgage guy here i'm excited  about today's video and the reason i'm excited  

about today's video is because we're going to  talk about the pros and cons of a cash-out refund  

a video that i did three and a half years ago when  i was just out there putting videos on youtube  

to help educate people on a mortgage i wasn't  trying to hack the youtube algorithm i didn't  

care how many people watched it but for whatever  reason this video really resonated with people  

it's got near 100 000 views now i've got tons of  positive feedback on that video so obviously it  

helped people it was important to people so here  we are three and a half years later pros and cons  

of a cash out refi revamped revisited improved  2.0 whatever you want to call it i've got three  

and a half more years of experience three and  a half years of serving thousands of clients  

with cash out refinances you know regular rate  and term refinances purchases all that stuff so  

hopefully i can give some insight based on all  the experience that i've accumulated over the  

last three and a half years and make this video  even better so without further ado i'm going to  

jump into it if you like straightforward real  estate mortgage and investing advice consider  

subscribing to the channel smash the like button  for the youtube algorithm i want this video to  

surpass that last video and i'm going to give  it to the end of the year to pass up that last  

video that got 100 000 views so with your help  i should be able to do that so pros and cons  

of a cash out refinance cash out refinance in  2021 is as popular as ever as you can imagine  

because people have tons of equity and rates  are really low so that leads us into our first  

pro you can get a lower rate and even though a  cash out refinance has a slightly higher rate  

than just doing a rate and term which  means paying off your old one no cash out  

if that slightly higher rate is still lower than  your current rate you're in good shape meaning you  

can take out 40 50 000 pay off credit card debt  remodel the house whatever it is students you know  

college education for your kid whatever the heck  it is but it only makes sense and it's only a pro  

if you're lowering your rate in my opinion if  you're taking a three percent interest rate you're  

doing a cash out refinance into a four and a half  percent to pay off 20 000 in credit card debt that  

lands on the con side the higher interest rate  because what happens is if somebody calls me  

they say hey matt i owe 273 on my mortgage but  it's worth 500 000 i've got equity to pull out  

i've got 19 000 in credit card debt i want to pay  off well if you're going to take a low mortgage  

rate and refinance it into a higher rate and  this is going to you know be evergreen content  

so maybe in the future when rates are higher  it's it's going to be like this where you've  

got a three percent from the year 2020 or 2021  and in 2024 a cash out is four and a half percent  

that's something you would not do because you're  gonna pay not just the four and a half percent  

on the credit card debt you're paying off but  on that whole 273 that you paid off and that's  

where i tell people don't pay an extra percent  and a half go from three to four and a half on  

um that whole mortgage balance of 273 000 because  rough math that's four thousand dollars a year in  

interest that you're paying you're paying over 300  a month in interest extra on that mortgage balance  

to capture that 19 000 or whatever you need  for paying off that credit card debt and that's  

another point that i don't know if i made it in  the last video but i'll make it in this video  

if you're taking out a small sum of money in a  cash out refinance i usually advise don't do a  

cash out refinance eight thousand dollars to pay  off credit card debt eleven thousand dollars for  

a roof fourteen thousand dollars for whatever  it is plastic surgery um you probably would be  

better off doing what's called a rate and term  no cash out and get the better interest rate on  

your mortgage and then find alternative financing  you know home depot credit card or something else  

to fund whatever that is that you're trying  to fund because you don't pay an extra quarter  

on the whole 300 000 or the whole 400 000 when  only 10 000 of it is needed for that project  

hopefully that makes sense so if you're able  to lower your rate and you're going from 375 to  

three and a quarter and you're taking cash out  and you're you know doing something constructive  

with the money that's a pro if you're raising  your rate and by raising let's let's clarify  

that if you're at a 3.125 and you can do a  cash out to three and a quarter but you're  

paying off 44 000 in credit card debt that's at  18 percent i'm okay with that i'm not okay with  

taking out 10 000 to pay off a high interest debt  and raising the rate from three percent to four  

percent on four hundred thousand dollars because  then you're paying that extra percent on all that  

money hopefully that makes sense and realize when  i when i talk about rates i'm just throwing random  

rates out there this video is going to be out  there for eternity so in 2027 rates might be  

7.25 who knows all right pro number two is  debt consolidation i've seen people use this  

beautifully and they've got a 600 000 house they  only owe 230 000 on it and for whatever reason  

they did some home remodel they sent a kid  to college they racked up credit card debt  

for whatever reason it doesn't matter now  if they've got 37 000 in credit card debt  

and they're paying 18 interest and just month  after month seven eight hundred dollars and  

they just can't get this balance to come down you  do a cash out refinance and do debt consolidation  

and pay all that stuff off if you go  from like we talked about you know  

seven five to three percent you might pull forty  thousand out and barely see a change to your your  

payment the really smart thing would be to realize  you've been paying five six seven hundred a month  

towards this debt consolidation maybe we run some  figures and we show you pay off all that debt  

your new mortgage is 150 more but you're used to  paying 500 600 more what if you apply that to the  

new mortgage paid off all your debt and then by  paying those extra payments you're paying towards  

credit cards towards your mortgage now you're  paid off in 21 years or 19 years something like  

that that's cool okay this is the con of that  exact scenario you pay off the credit card debt  

and you repeat the cycle you reload it back on  that is definitely a con because let's be honest  

us as americans we are consumers and to be uh you  know uh i'm gonna i want to say this nicely uh i  

don't know some people would say you know you're  contributing by by going out there and spending um  

you don't have to do that you don't have to go out  there and spend recklessly on on random things but  

if you pay off that same 30 south 37 000 in  credit card debt and then 18 months later  

you've got 46 000 because all of a sudden you've  got all this room on credit card to go ham you  

wouldn't want to do that so that's a con is you're  basically um exposed and you know human beings

human beings okay use equity for investment this  i put it on the pro side because i've seen really  

cool stuff i've seen taking out you know sixty  thousand when you owe three hundred and your house  

is worth eight hundred it's just that five hundred  thousand dollars just sitting there some people  

will call it debt equity some people who are a  little bit more or less risk averse and and trying  

to put their money to work for them would go crazy  seeing all that money other people who are very  

conservative feel really uneasy taking it out so  again it's personal preference but if if you do it  

in the right way let's say you take 80 000 out you  know 300. now you owe 380. the house is worth 800.  

you're still 50 uh loan to value or less you've  got a comfortable fixed rate mortgage you can  

afford it's not stretching you and you take that  80 000 and you start the business you've always  

wanted to start what if that business generates  a hundred thousand dollars a year that could be  

a humongous pro right and i've seen it it works or  you take that 80 000 invested another property you  

got a great screaming deal on a property that you  know your cousin bobby joe is is selling and and  

you're going to get a great deal and the thing's  going to kick off four or 500 a month in cash flow  

as an investment property and this 80 000 is  that down payment for that that could be a pro  

the con to that exact scenario is over leveraging  yourself equals more risk and so i've i've seen  

this as well and i'm not going to sugarcoat things  you've got a property that's worth 400 000 and you  

owe 200 you say matt i want to pull out the max  whatever i can go to max which is 80 if you if you  

live in the house so you pull all that cash out  you up your loan amount to 320 and today's rates  

and today's fixed rate mortgage it's hard really  to to get yourself in trouble but you could if  

you had a comfortable payment at you know what you  owed before now you pull it up to 320 and now your  

mortgage payment went up by five or six hundred  dollars the investment went bad and now you've got  

a higher mortgage payment and it's a struggle you  you know 2020 prove that there's you know plenty  

of surprises in store for all of us all the time  maybe you lose your job or something and now that  

2400 or 2500 mortgage payment is really a stretch  and you get yourself in trouble where you might  

not have been in trouble had it been 1900 like it  was before all right in closing they're definitely  

pros and cons the best advice i can give you  is talk to a mortgage professional that cares  

about you walk through your scenarios talk through  your scenarios find out what the best game plan is  

and when you have a clear game plan in mind then  it's okay let's do this maybe we don't take out  

this much cash maybe take out this much maybe we  just do a non-cash out a rate and term refinance  

or maybe we do the cash out and you know just put  the game plan in place and be careful with you  

know the rate you don't want to be paying extra  interest on um the whole mortgage so any questions  

at all please feel free to reach out matt m-a-t-t  at matthewmortgageguy.com i'm happy to help i'm  

only licensed to california so if you're outside  of california go to my website matthemworksguy.com  

fill out a form i'll refer you to a great  broker at whatever state you're in you