That whole idea of cashing out while rates are low isn't always the right move

I keep seeing people on here saying you should always do a cash out refi when rates drop. Last month I was looking at my 3.25% rate from 2021 and thought about pulling $40k out for home upgrades. My buddy in Austin did exactly that in March and now he's stuck at 5.8% on a bigger loan. I ran the numbers and even with the extra cash my monthly payment would jump $280. Sometimes keeping your old loan is smarter than chasing a few grand in cash. Has anyone else passed on a cash out refi even when the numbers looked okay on paper?

3 comments

3 Comments

wesleyc752mo ago

Honestly I was this close to doing the same thing with my 2.75% rate last year until I realized my credit score is only a few points higher than my age so I just painted the bathroom myself instead. Tbh the numbers looked fine on paper but my wallet cried a little when I saw the new payment.

corac911mo ago

Totally agree with you on this one. The closing costs are the hidden knife in the back of any cash out refi, honestly. But here's the followup I've been chewing on - when does keeping the low rate actually cost you more in the long run? Like, say you need that $40k for a new roof that's leaking right now, not just for something nice. Borrowing at 5.8% might suck but not fixing the leak costs way more in water damage later. My neighbor put off a new HVAC system for two years because he was obsessed with his 2.5% rate, and then the compressor died in July and he had to finance it on a credit card at 18%. So where's the breaking point where the math shifts from "keep the rate" to "just do the refi and fix the damn house"?

clairer792mo ago

Oh geez, I totally get where you're coming from with this. I was actually looking at a cash out refi on my place a few months back because I wanted to replace the old windows and the numbers seemed fine on paper at first. But then I looked closer... and realized the closing costs alone were like 6 grand, and that's money I'd never see again. My sister did a cash out on her house in Denver and now she's kicking herself because she used the money for a new deck and now her payment is way higher than she thought it would be. It's like, you think you're getting ahead but really you're just borrowing tomorrow's money today and paying extra for it. Sometimes the best move is just to save up slower and keep your rate locked in.