Mortgage lenders charge dramatically different interest rates depending on whether a loan is "cash out" or not in a way that doesn't make a lot of sense to me.
-
Show this thread
-
It seems like someone with a LTV ratio of 60 percent who wants to take another 10 percent cash out should get roughly the same terms as someone who is refinancing at 70 percent LTV with no cash out. But this doesn't seem to be how it works.
9 replies 0 retweets 5 likesShow this thread -
Replying to @binarybits
Willingly increasing your leverage on an an already-owned asset is a risk-increasing move, and it makes sense that they'd charge more to compensate for that.
1 reply 0 retweets 1 like -
Replying to @FunkyDuffy
Sure, that would explain why someone with an 80 percent LTV would pay a higher rate than someone with a 70 percent LTV. But it seems like mortgage companies charge significantly more on cash-out re-fis even holding after-cash LTV constant.
2 replies 0 retweets 2 likes -
Replying to @binarybits
right, because the mere act of cashing out means you are *more risky* than the person who just gets a regular mortgage at the same LTV
1 reply 0 retweets 2 likes -
Replying to @FunkyDuffy @binarybits
notably, the kind of people who regularly get cash-out refis will use the cash as a downpayment on another property and chain levered asset into levered asset, which is more risky than just one
1 reply 0 retweets 2 likes -
Replying to @FunkyDuffy
You are probably right that this is the thinking. The interest rate spread (in my case, >1 percent when I'd use the money to pay off a HELOC) seems excessive.
1 reply 0 retweets 2 likes -
Replying to @binarybits
lol wow I was only hearing ~half a percent recently, looks like the murmurs of a consumer credit crunch might be true
1 reply 0 retweets 1 like -
Replying to @FunkyDuffy @binarybits1 reply 0 retweets 1 like
oh very interesting, ty!
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.