Why would a lender tell me not to take out extra money when refinancing my house?

by justin

Question by mobgirl: Why would a lender tell me not to take out extra money when refinancing my house?
Recently, I was talking to a mortgage consultant at a bank. She told me that she would recommend just refinancing for what I owe. She would NOT recommend taking out any extra money. She didn’t explain her reasoning for this. Out of the 3 mortgage people that I have talked to she is the only one who has said this. Why would she tell us this?

Best answer:

Answer by cdh
I can think of three possible reasons. There are likely many more:

1. She knows many people who take out extra money during a refinance are people who will end up in worse financial shape and she’s just trying to give you some good advice.
2. She is working for the bank and sees you as at risk for going bankrupt. This would increase the bank’s liability in the case where they have to repossess your house and you go bankrupt.
3. The bank is already struggling with low cash reserves due to the subprime mortgage crisis and the bank doesn’t have a lot of available cash. It might be a current bank policy to recommend against taking out extra cash on a refinance.

What do you think? Answer below!