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?
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!
Because she is wiser and is looking out for your interest more than hers. She is trying to keep you from getting into more debt than you already have. And she is trying to keep your refinancing fees as low as possible.
There may be a good reason to take cash out of your equity. For example, if you have credit card debt, an auto loan or other debt on which the interest rate is higher than on the mortgage, taking out cash in your refinancing to pay off those debts is a good idea. Interest on your mortgage debt is tax deductible, and it is not on other debt. But if you don’t have higher interest debt to pay off, there is no point into going into more debt than necessary on your home.
Unless she did a complete fact find and analysis of your situation, take her advice with a pinch of salt.
Get a proper financial advisor.
Generally re-mortgaging is one of the cheapest ways to get a loan, but you’ll be reducing your amount of equity in the house.