Hello all. Rah, yut, all that good stuff.
I've been looking into the possibility of doing a VA cash out refinance for the sake of paying off some accumulated debt. I've seen past posts on the subreddit regarding this topic, but from people with end goals different than my own, so I'm looking for more relevant advice I suppose.
I purchased my home with the a 30 year VA home loan for $248,650 with an interest rate of 2.75%. My monthly payments are ≈$1267 a month, and thanks to my subscription to Body by Corps, my 90% disability rating means I do not have to pay property taxes in my state (Illinois), so my payments have fortunately been going toward the loan. My current loan balance is $229,500 (rounded). In the time I've owned the house, the value has increased to approx. $325,500, which I would assume will bring a good amount of equity my way, or at least all the solicitation mail seems to think so. The value is also not accounting for the solar panels that have been added within the past month (no down payment and the monthly installments will be lower than my average electric bill is, so that's not a cause of financial concern).
Financially, my wife and I have good jobs. I work in IT and she's in the medical field. Including my disability payments, I gross about $100k a year myself (and I'll have partial GI Bill payments coming in until I finish my degree next April). My wife makes about $70-80k I believe, with the potential for more in the future. I intend to make more in the coming months as I'm in line for a promotion, though I don't have an exact idea of how much more. Long story short, we have steady, reliable income and I'm not worried about something drastic happening.
My accumulated debt is the result of getting married and us not having the cheapest wedding. It was more expensive than I would've liked, but that's in the past now and what's here now is debt and interest. My goal with a refinancing would be to take the equity to either completely pay off my debt or at the least, make a sizeable contribution towards said debt, and put the rest in my HYSA. I have no renovations planned (we plan on moving in the next two years), we aren't taking any extravagant vacations, and we're not prone to making unnecessary large purchases. We've both paid off our vehicles. She has a good chunk of her student loan debt to pay off, as well as other debt to account for, so our finances are being split in multiple directions. This refinancing will only be for this wedding debt and savings. Prior to the wedding, I had essentially no debt whatsoever (not including mortgage), because coming from a very poor background, excess debt is something I strongly try to avoid. I have no concerns about accumulating this debt again due to irresponsible purchasing habits. The payments I make on these cards would be much more appreciated if they went towards my savings instead.
Does the cash out refinance option sound like a valid route to take? My intention was to allow the equity to build for when we do sell and move, but if I can leverage the equity against my debt and go back to making respectable contributions towards saving, I feel like that would do me better in the long run. An increase in monthly payments is not a concern within reason, as even if I had to pay an additional say, $500 a month on my mortgage, I'm paying far more than that towards this debt just to fight back the interest payments and it would still be less than one of my bi-weekly checks or my disability payments. If more details are required, I will do my best to provide them as needed. I don't know if I've provided all the key information or not, as this type of financial knowledge isn't exactly my area of expertise.
Numbers:
Loan Balance/Length: $229.5k x 30 year
Interest Rate: 2.75%
Home Value: ≈ $325.5k (not incl. new solar panels)
Income (myself): ≈ $100k annually
Debt: ≈ $50k
VA Home Loan Cash Out Refinancing. Yay or Nay?
byu/CocoaNinja inMilitaryFinance
Posted by CocoaNinja
4 Comments
Unless this wedding was funded entirely by credit cards and payday loans, I’m not seeing a scenario where the cash-out refinance makes sense to tackle debt.
By doing this cash out refinance, you’re effectively turning this unsecured debt into debt against your home, as well as wiping out any equity you’ve built up. Typically, there’s never a good reason to make unsecured debt into secured debt.
Above all else, a quick back of the envelope look at your household earnings relative to this debt shows that you guys can very easily knock this out within 12-18 months, depending on how aggressive you’re willing to get. Now that you’re married and you and your wife both agreed to take on this huge sum of debt for a wedding, it’s time for both of your incomes to go towards paying it off. Your mention of only your income in the footnotes gives me pause, as it suggests that you and your wife aren’t viewing married finances as a joint effort.
Are there any other debts that are taking away from your monthly cash flow? Auto, student loans, credit cards, additional personal loans, annuity payments, etc?
I made a similar comment to one of the more recent posts, but I’ll repeat for this one as well.
Before refinancing that sweet sweet interest rate you have, you should look at the following courses of action first:
Balance transfer credit cards. Some cards go up to 21 months of 0% interest on balance transfers. If you say you can afford an extra $500 on your mortgage then you can afford to pay $500 per month on 0% balance transfer credit cards. Ideally you should be putting any and all extra money into attacking that debt. Idk what your credit score is like but it doesn’t sound like it’s bad? If you don’t get immediately approved for it, call the reconsideration number and talk to an actual person to explain what you want to do. If you don’t end up paying it off in time period and still have a sizable amount left THEN maybe look at refinancing and or sell like you said you want to do. I’d be curious to know if you could just keep transferring the balance to a new 0% apr card tho each time the period ends too..
If you still don’t get approved, you could call the credit card company and just ask them to lower the interest rate. This may be better to start with actually and see if they’ll lower it to 0% if you tell them you’re going to transfer the balance if they don’t. I got mine lowered to 8%. It comes with restrictions but the main goal is to pay it down so it’s fine.
Hope this helps.
Combined if you’re both pulling in almost 200k a year, there is ZERO reason why you should do a cash out refinance to pay off 50k in debt.
Do you all have a budget? If so, what percentage are you paying a month against this 50k debt? You said you have two vehicles paid off so what are your monthly expense besides the mortgage?
If it makes financial sense where you only have to worry about a mortgage payment and it reduces your burden overall then yes.
Story: couple bought late 2022 but gained 200k equity. Decided to consolidate 6k/month of auto loans, credit cards, etc. Opted to do their VA cashout refi and while their mortgage payment went up $500 they’re up $5500/month in savings.
If the math makes sense then yes.
The other option is get a heloc or heloan to consolidate instead of trading that nice 2.75 rate which will likely never come back for a long time.
Best of luck