With record-high home equity and declining mortgage rates, the temptation to do a cash-out refinance is growing. I’ve certainly considered it myself. However, after careful reflection, my conclusion is that it’s probably not the best move.
Having written about refinancing since 2009, I’ve seen too many unfortunate cases where people took out a Home Equity Line of Credit (HELOC) or did a cash-out refinance, only to harm their overall financial health. The urge to spend on unnecessary things was simply too hard to resist.
The less debt you carry, the better. Ideally, you want to finish your working years debt-free, so you can enjoy a financially stress-free retirement.
A cash-out refinance increases your debt load and heightens the risk of falling behind on your financial goals. As we get older, time becomes our most precious resource, and moving backward financially only costs us more of it.
My Master Plan to Buy Real Estate and Then Do a Cash-Out Refinance
In 2023, I devised a two-step plan to improve both my finances and lifestyle.
The first step was to pay cash for a home, as high mortgage rates had dampened demand. By purchasing with cash during that period, I aimed to secure a better deal and avoid high mortgage costs. The second step was to patiently wait for mortgage rates to decline, then do a cash-out refinance to re-liquify my assets.
I successfully executed step one and bought my forever home at a discount in October 2023. Since then, home prices have risen by 10%–15%, as seen in the 2024 spring bidding wars. Meanwhile, mortgage rates have dropped significantly, falling nearly 2% from their peak.
Now, I’m faced with a decision: should I take advantage of these lower rates by cashing out? I suspect some of you may have had the same master