How big is the second?
Generally (not always) a cash-out refi boosts the interest rate you are paying up 0.5%. Run the numbers with the cash out vs subordination and see which results in lower total costs.
If the second has a significantly higher interest rate than the first and combining still keeps you out of PMI(if you currently are out of PMI) – it might actually benefit to combine and take the hit on the new first’s interest rate – you got to run the numbers for both to know. I don’t have enough info of your situation to do that.
NOTE: An increase in interest is not quite as bad as most people think. Remember that mortgage interest is tax deductible. To get the real ‘effective’ rate on your disposable income, use your marginal tax rate (amount that each additional $ of income increases your tax). So, if you are in the 30% total (fed and state) marginal tax bracket, real interest rate increase would be 0.005 * (1 – 0.30) = 0.0035, or 0.35%.[/quote]
I could not disagree with you more.
*****Your (mis)information is dangerous.
Cash out generally does NOT increase your rate .50%
A subordination of a HELOC is almost always a far better choice.
Who is talking about PMI ?
Penalty to close HELOCS are usually $300, only in the first 3 years.
Interest rates on HELOCS is usually not more than prime rate
currently 3.50%
Most people who have HELOCS, have them for relatively low amounts.
Increase in interest rate is WORSE than most people think.
Are you a CPA ?
You are still paying the interest. Who cares how much of it is
tax deductible. For every extra dollar you pay and save 30c, aren’t you still paying 70c ?
When your rate goes up for cash out, you aren’t only paying the higher rate on the cash out portion, the higher rate is on the entire loan amount. .25% over 30 years is a lot of money.
Do you understand the standard deduction ?
For a couple with $12,600 standard deduction, the first $12,600 of Interest/Property taxes is a wash.
With current low interest rates and old property tax base, many couples (filing jointly) are better off with the standard deduction.
Their mortgage interest is a complete waste of money as it’s NOT tax deductible when taking the standard deduction.
In many parts of the country, interest + property taxes is nowhere near $12,600
2 huge myths that get repeated (Not only by ignorant Realtors):
a) Rent is throwing money away
b) You should buy a house to get the tax deduction
***************************************
a) No it’s not
b) You should get tax advice from a qualified tax adviser
*Everyone’s situation is different; there are always exceptions.
