$100k - Refinance or Invest? Need Lower Payments!

[jIM_Ohio]

No Maat, your missing the financial point. They need to lose the least amount of money. By selling the house they will lose commission and moving expenses. Now say they could sell it by themselves (not possible right now in CA), they might only lose 3%. Still $9k.

Instead if they turned it into a refinance they would be able to stay in the house. I think from reading the thread, the numbers work out that they can manage going from $2400 to $1300 using scanners suggestion of 20% DP, 30 year fixed @ 5.5%.

Reasonable decrease of almost 50% in payment. Also leaving them a cushion of $40k.

What is his wife income of their combined gross income of $105k? If it's $20k, then they are down to $80k and a payment of $1300/month. That's $1300/6666 = 19%. Much more manageable than 25%.



Also with their income

I agree with LAL.

Goal is to fix current situation, not get into theoretical best situation. Moving costs money and there will be little to show for it except cash flow.

Refinancing keeps all money working for couple. OP said moving is not an option based on house improvements anyway. Movings costs the most to improve cash flow only, and in the end moving does not improve short term net worth at all. Refinancing maintains net worth (because the 100k is in house, not movers or realtors pocket), and also improves cash flow.

[InDebtInDC]

A house is not an investment, it is a debt!!! People form attachments (call them a HOME), and keep pumping money into them (repairs, improvements, new furnature).

Do you purposely keep pumping money into the stock market at a loss to keep it running? Also to many people are buying a house with a long loan length, then they are not paying off the home prior to retirement because they are just keep moving to the bigger home or more expensive home and getting a longer loan, thus NEVER TRUELY OWNING IT!

I agree with everything you said, but what about drawing out the loan in hopes of inflation, where your wages become much higher than your fixed loan payments?

[LivingAlmostLarge]

It's an investment because you don't have to move! Awesome right? But it's a bad investment. But an investment.

[Scanner]

A house is not an investment, it is a debt!!! People form attachments (call them a HOME), and keep pumping money into them (repairs, improvements, new furnature).

Do you purposely keep pumping money into the stock market at a loss to keep it running? Also to many people are buying a house with a long loan length, then they are not paying off the home prior to retirement because they are just keep moving to the bigger home or more expensive home and getting a longer loan, thus NEVER TRUELY OWNING IT!

Sad fact of life for most Americans, their house is their single most important repository of wealth and in the case of this couple, it is their single biggest asset.

Assets

300K House
100K Cash

Liabilities

300K mortgage????

I am not sure why financial advisors don't to factor housing into the "equations" and "calculators."

It's too large of a matza ball IMO.

I thought the issue was cash flow. . .not so much investing anyway. I am trying to preserve a reasonable "cushion" for him and at the same time reducing his monthly mortgage premium.

[Broken Arrow]

Ah, the good ole, "What is a house really?" question.

A while back, I came to the conclusion that it's all of the above: It's an asset, a liability, a sentimental attachment, and an investment all rolled into one....

But not neatly.

And to emphasize any one facet while ignoring others is a dangerous proposition indeed (or worse, using these facets to rationalize a poor buying decision).

It also doesn't help that a residence can change roles and priorities, at any time, depending on what's going on.

I haven't been keeping up with this conversation, so I'm just rambling in general....

[markio26]

i would stick with the house you have... adjust spending in other ways... we built a new house on an island and it was close to the amount you are discussing... we still owe money on 4 credit cards from building a garage 6 years ago and repainting and recarpeting, out bldg, etc... we had it ruff the first 5 yrs.. it gets easier and i do think the market will rebound.. the house we own is in an exclusive hot market area, homes sell in the millions on the island... i think the cheapest cottage that is old is $175,000 on sale now...

[albertknowles09]

$100k - Refinance or Invest? Need Lower Payments!

hi,
the amount you placed is confusing as it is not giving the perfect value and proper amount of income.

[wincrasher]

Well if you read the post carefully, you'd notice he said they own in California.

Don't know what kind of house you'd get for less than $300k - even now. So suggesting they sell and buy something cheaper is the same kind of condescending, detached advice we usually dole out.

I think that you have to decide how comfortable you'd be sinking all your money into one thing - namely your house. Many experts right now are cautioning against this right now - at least until home values firm up a bit. Also, what is your life insurance situation right now? Working in Iraq, you need a plan if something happens to you.

My advice is to keep as liquid as possible for now. Don't chase the big returns in this crazy market. Savings from a low-cost refi (if you can) plus some modest investment income may ease your short term cash flow problems, but not solve them entirely. Have the wife keep working for now. In a few years, your situation may be better and you can explore other options.

[cowpoke mcstink]

OP here.. came across this post after googling my username and figured I'd write a conclusion!

I came back from Iraq and used 90k to do a cash in refi. I held the 10k back as an emergency fund. This lowered the payment to reasonable levels, but not single income levels. We had our first daughter and my wife went back to work after maternity leave.

Our incomes went up, but the housing market tanked. In 2012 comparables were going for $115k. The neighborhoods surrounding us went to crap as all the new housing built in the bubble was converted to rentals after their previous occupants stopped paying.

We decided to "hedge" our exceptional real estate investment and purchased a larger home in a better part of town for 160k. We got very lucky and found an exceptional long term renter for the original property and his payment covered the mortgage.

Flash forward 5 years and market values have mostly recovered. I sold the original property for $265k last year.

The new house is worth 300k, so I guess the gamble I took in we 2012 mostly paid off.

Hope everyone who participated in this thread all those years ago are doing well! Thanks for your advice!

[scfr]

Thank you for the update!

[LivingAlmostLarge]

wild you came back now