Cash-out refi only 1.8% 15 year fixed

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Submitted by gzz on July 20, 2021 - 8:20pm

Why not borrow at 1.8% and put in tax free muni at 4%?

For 250k, net tax-free income is $5500 per year. Very little risk. Muni fund’s price could decline, but they generally don’t and would need to decline a lot.

Submitted by an on July 20, 2021 - 11:23pm.

Ooh, where can you get 1.8% for cash out refi 15 years fixed? The lowest I can see on zillow is 2.875%.

Submitted by gzz on July 21, 2021 - 7:06am.

Zillow. Are you doing 15 year sfh owner occupied 300k+ and under 50% ltv?

Submitted by scaredyclassic on July 21, 2021 - 7:24am.
Submitted by an on July 21, 2021 - 7:44am.

Just reran on zillow (15 years SFR primary, no cost) and assuming $1m property with current balance of 200k and cashing out 250k, current rate I see is 1.99%. If I change current balance to be 500k, rate goes to 2.25%. The only way I can get 1.875% is to do no cash out and have LTV @ 50%.

Similar parameter but with 30 years and we're looking at ~ 0.625% higher. So, 50% LTV with no cash-out is 2.5%.

I refi in February this year @ 2.5% in a 30 years fixed. So, rate is back to where it was earlier this year. I'm waiting for the 30 years to hit 2.25% to refi again.

Submitted by gzz on July 21, 2021 - 10:39am.

My timing was worse, i locked when 10 year was 1.6, now 1.3.

Probably I will do the cashout and muni plan in 2-3 months if we drop another .1.

Keep in mind tax rev is gushing in so the supply of new gov bonds is way down v 2020.

Submitted by gzz on July 27, 2021 - 12:11pm.

AN: I tried again, current balance 260k and cashing out 200, and I got 1.875% with no points/fees.

Popping it up to 250k out showed the same offer, plus one with a lower APR (1.75% + fees that bring it to 1.80%).

If I grabbed the no-fee 250k cash out offer, the interest on my cash out would be $4687.50 the first year and the EVM tax free Cal muni would pay $10,600, resulting in an after-tax gain of $5912.

It seems that the very best rate is with a 285k cashout, which has a 1.875 rate with $700 lender credit. Going a tiny bit higher to 290 causes the rate to go up to 2.25%, so there seems to be some threshold balance of around $545k that greatly increases the rate.

Submitted by gzz on July 27, 2021 - 12:13pm.

An even more conservative rate arb would be for me to use the 1.875% cash out to pay down my 3.625% investment condo mortgage.

Big question on this is whether the cash out interest would be tax deductible like the current loan is.

Submitted by an on July 27, 2021 - 6:44pm.

gzz wrote:
AN: I tried again, current balance 260k and cashing out 200, and I got 1.875% with no points/fees.

Popping it up to 250k out showed the same offer, plus one with a lower APR (1.75% + fees that bring it to 1.80%).

If I grabbed the no-fee 250k cash out offer, the interest on my cash out would be $4687.50 the first year and the EVM tax free Cal muni would pay $10,600, resulting in an after-tax gain of $5912.

It seems that the very best rate is with a 285k cashout, which has a 1.875 rate with $700 lender credit. Going a tiny bit higher to 290 causes the rate to go up to 2.25%, so there seems to be some threshold balance of around $545k that greatly increases the rate.


Weird, I just ran it again on Zillow with property value of $1m, current balance of $260k, $200k cash-out, SFR primary residence with 15 years fixed and no point/fees and lowest I see is 1.99%. I guess rate must have gone up today.

The current conforming loan limit is $548,250. So, as long as your new loan amount is less than that, you get the best rate.

Submitted by gzz on July 28, 2021 - 10:55am.

So much for "extended conforming" that I thought was like $750k here.

I was doing property value of 1.3 but I don't know if that makes a difference. On my refi they put $999,999 and waived appraisal. I am also using zip 92107.

Here's what I see now, still showing 1.875 no fee, but worse than yesterday when there was a $700 credit.

https://i.imgur.com/8JhN0J4.png

Submitted by teaboy on August 2, 2021 - 10:08am.

gzz wrote:

If I grabbed the no-fee 250k cash out offer, the interest on my cash out would be $4687.50 the first year and the EVM tax free Cal muni would pay $10,600, resulting in an after-tax gain of $5912.

gzz,
I'm not too familiar with muni bonds, but i just wanted to confirm how you calculate the distribution of $10,600 here?
The EVM fund overview (https://funds.eatonvance.com/california-...) showed the last distribution was ~4.25%, which would return $10,600 on an investment of $250,000. But, after the total expenses/fee of ~2.12%, wouldn't the actual cash distribution be reduced to ~2.13%, which would pay only $5,325, not $10,600?
Also, this assumes the distribution rate of ~4.25% continues for the next year and beyond, right?

tb (confused newbie)

Submitted by gzz on August 2, 2021 - 5:07pm.

The expense ratio is taken out before the distribution is calculated.

Some of the fee BTW is interest because the fund borrows money and is somewhat leveraged. This is pretty normal for bond funds but I think you can find ones that don't that pay a lower amount.

The distribution amount in these funds doesn't change much year to year.

The very long trend is toward lower amounts simply because interest rates are falling. But you can pretty safely assume if you buy now it will pay ~4% for 10 years.

The fee is on the high side, even with the interest subtracted. I have looked into direct buying of munis, but not quite worth the hassle IMO.

Submitted by teaboy on August 4, 2021 - 11:42am.

Thx, gzz.
What made you choose EVM? There seem to be numerous others with more favorable risk/return profiles..
https://money.usnews.com/funds/mutual-fu...

tb

..this may answer my own question, but is the capital gains from these funds also federal & state tax-free?

Submitted by gzz on August 4, 2021 - 3:39pm.

capital gains are not tax free.

The efficient market hypothesis suggests these bond funds are fairly priced relative to each other.

I think I picked the one with a relatively large size and high yield.

Submitted by gzz on September 28, 2021 - 4:05pm.

I did it! Ended up at 2.0% no cost.

Lots of Cal muni funds, hard to decide. The closed end ones all pay about 4% tax free.

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