This is how the housing bubble started. Your property has increased in value $30k in only one year! So you refi and now the mortgage is $30k more than it was before. If the property values go down (like they did in 2008) - you are going to be underwater.

If the people that took money out had actually used it on the homes it might have been ok, at least the home value would have increase a bit with new bathrooms, roofs, etc ... the problem was that most cashed out that equity and spent it on vacations, cars, keeping up with the Jones' and the good life they were entitled to ...

It's been a long time since we refi'd (for the then existing balance) -- wasn't the rule of thumb that you wanted rates to be at least one full point lower and to be staying in the home a minimum of 3-5 yrs? Of course, that would lower your payments and/or allow you to pay off the note sooner -- a goal or decreasing debt rather than increasing.

Is that $30K something you really want to be paying on for 30 years?

BTW, you do know that no closing costs means you aren't paying them up front -- not that you aren't paying them. They are rolled into your payments. And your 4.8% rate says you either don't have great credit (not terrible -- but not great) or you are paying a higher rate for running up the loan value. Looks like they are starting near 3.6% on a 30 yr loan, a bit less on a 15 yr note.

No, do not roll other loans into your mortgage. Bad idea. Refinancing at a lower rate is fine!

Shopping around to see what you can get is a fine idea, but I agree that you don't want to roll in another loan. Since your interest:principal ratio is higher at the start of your payments, I'd print off your current amortization schedule and your anticipated amortization schedule with a new loan, and see how long it will take you to get the principle amount of your payments to the point they are today.

I'm fairly financially conservative, so if I were to re-fi at a lower rate (without rolling in another loan) and lower my monthly payments, I would sock away that extra money into savings or pre-paying the mortgage (check the rules of your loan.)

I would look into refinancing but DO NOT roll a 30k loan into the refinance. That is asking for trouble. Take the money you'll save each month from lower payments, put it into savings and when you have enough saved use the cash to pay for your renovations.

Thanks everyone, that makes sense.

@lascatx our house is a duplex so our interest rates are higher than a single-family home. I think (based on research) the best we could get right now would be around 4.25%.

We would be using this money on home improvements only--not vacation, credit card debt.

We need new windows and a new bathroom and some other work done. Do you advise against home improvement loans across the board or just those that get rolled into mortgages?

I'm always on guard when someone comes to you to 'inform' you of some great deal. In this case, they want an opportunity to create business for themselves. This reminds me of the old saw, "We're from the government. We're here to help you."

Do you NEED new windows, a new bathroom, and other work? Can you put it off until you can pay what it costs and save paying interest on money you borrow to pay for it?

I'd rather pay $2 for a loaf of bread than charge it, carry a balance, and pay $3 -- unless I was starving.

We actually do need them. Insurance requires we have hurricane impact windows and most of our windows don't even open right now and leak so much air we are losing money every month. And the bathroom was built so terribly that they put in a shower without proper support so it's quite literally rotting through the floor.

That said, maybe we could pay for one with a loan and save for the other.

I find this more and more difficult to believe: You own the home for a year and now the insurance company requires.... what about when they first insured it?

Window's don't open, leak air - didn't you know that when you bought the house? Losing money every month - sounds like a window salesman told you that.

"And the bathroom was built so terribly.." Did you get this inspected before you purchased it?

Lastly: "with no closing costs" How do you think the lenders / brokers make money - it's hidden in the interest rate - you will pay probably 3 times the closing costs - over the 30 year term of the loan.

I'm sorry you find this so difficult to believe and seem so astounded by it all. Here is some more context for you:

It is a standard requirement in Miami that homeowners insurance require you to either have hurricane impact windows OR hurricane shutters. If you don't have it, your premium skyrockets to almost the amount we pay for our monthly mortgage. I didn't say they suddenly NOW required it--this was required at closing. We did purchase shutters but they are certainly not ideal during a hurricane and impact windows are also theft-resistant (which would also lower our insurance) and will help us save the money we are losing with the air leaking.

Yes, we did know these things when we bought the house. Yes, we had an inspection. I'm not sure if you are familiar with Miami but most home work is done without licensing and many houses are riddled with seriously shoddy work, such as our bathroom. We already spent $10k on a kitchen because we found out the main pipe had split from floor to roof and was spraying water in the wall and had rotted the sill. That was something the inspector missed.

We aren't wealthy and we knew we were buying a house that needed work but it was in move-in condition. And for the price range, it's the best we could get and in a good neighborhood and the income we receive upstairs is really helpful.

I understand the closing costs are rolled in. I came on here to get information and never said we were leaping blindly and taking the opportunity. Obviously I posted here because we wanted more information and are trying to approach it cautiously and practically. So it's not some conspiracy or something so outrageously unbelievable. We are first time homeowners who both work full time and have two young kids and just trying to figure it all out and learning a lot as we go.

We also don't plan on living in this house forever. More like 5-10 years max.

Under your circumstances, if you have the hurricane shutters, (I understand as I'm in FL too), then do the bathroom first since it sounds like it is rotting through the floor. That is not a good situation. Do you not have any money to do the bathroom now?

We don't have enough money to cover the full bathroom renovation--especially if it uncovers more problems as we go (which I imagine it will). It would run our savings lower than we are comfortable with. But we will explore all our options and figure it out. We only just started to rent out the second floor on AirBnB so we are hoping that it will eventually cover the full mortgage and then we'll be able to put more money aside for projects. We are able to cover our mortgage without it (just assuming that someone will ask this question) but having it offset allows us to save more obviously.

Right now, after doing more research and based on some feedback, it seems the best option for us is to just do a no cash-out refinance. We got one quote with a 3.375% interest rate which would significantly lower our monthly principal + interest. Then maybe we can do the house work in stages.

Thanks for explaining more fully. (We see a lot of posts from people who only *think* they need what they only want.) I'm so sorry for your 'house of surprises'!

There is a Household Finances Forum here where you could probably get better advice about how to best finance your NEEDED repairs.

"Right now, after doing more research and based on some feedback, it seems the best option for us is to just do a no cash-out refinance. We got one quote with a 3.375% interest rate which would significantly lower our monthly principal + interest. Then maybe we can do the house work in stages."

Exactly! And make sure the savings you have each month goes into the bank and not for other things. And if you keep that habit up, you'll get the house fixed up in no time, plus then you'll have extra savings for the future. A win/win.

lascatx has a point about the shower. If you have another place to shower, then use that one instead. Don't use the bad shower until you have the funds to fix it.

Thank you everyone. I can see that from your perspective, it does sound like we've purchased a real lemon of a house. But all of our friends who have bought their first homes around here are facing plenty of the same issues. Our closest friends bought a house with beautiful historical windows and not one of them opened and they just spend a fortune getting the windows restored and opted for shutters in place of impact windows. Other friends had termites and bad electric. So we don't feel like we're in as dire shape as it might sound, in other words.

There are dozens of ways I could imagine sinking money into our house to improve it--but I also think that it's probably not worth it to try to make a silks purse out of a sow's ear. That's why our focus is on the bathroom and windows--making bathroom a priority does make sense. Those should both help increase resale value and if we can't do windows before we resell in 5 years, we're ok with that.

The bathroom is the priority. The windows not so much. After the bathroom, make the house look pretty. People fall in love with how a house looks. I wouldn't sink a lot of money into the house.

I agree -- if the windows are working, you won't get money back much less improved value on new windows. If they are failing, then you have to make that assessment on need and value.

I don't think you bought a lemon. Older homes all have issues and need people who will give them some TLC. Miami was a depressed real estate market and I'm sure that there was a lot of what the pros call "deferred maintenance" in most neighborhoods -- not just older homes. The only issue I would have is with buying an older home and not expecting to find some things that need attention -- either that didn't get caught in an inspection or that got worse after. You shouldn't buy an older home without some reserves fr such things.

You may have had those reserves and had that pipe in your kitchen and the repairs needed there wipe them out or exceed them. That can happen and now you look to see how to best deal with what is left. Start by prioritizing the things needed -- that's your shower, then the rest of the bath, then anything else. If you see gaps or actually feel a breeze blow past your windows, you may need some work done on them -- but it might be caulking, repairing trim around them, replacing glazing or some other options short of replacement.

As long as replacement is a want and not a true need, I would put it off until you can afford to do it without putting yoursef in a hole. A refi that increases your debt should only be done as a last resort -- and best if the total loan still falls within the 80% of fair market value (required in some places). You always want to feel like you own your home -- not you home owning you.

Hang in there....

Sorry I have been really busy and although I saw this question I have really not had time to comment until now (thanks to a small case of insomnia).

There are generally two types of refi mortgages, and lots of modifiers you can put on them. (1) Typical loans with typical closing costs and (2) no closing cost loans. I will give the pros and cons and an expert opinion on them (and yes I am aware that I am proclaiming myself as an expert.) In either case, it never matters how long you have been in your previous mortgage. How much time you spent in your previous mortgage is a reflection of how good your previous mortgage was and should not be used to consider whether or not to refi, it is the very definition of a sunk cost.

First, no closing cost loans. Loans that actually have no closing costs will typically charge a slightly higher interest rate, usually .25 to .5 percent higher depending on your situation. The bank recoups the necessary fees by getting these interest rate premiums. A general rule for no closing cost loans is, if you can get half a percent lower then it is time to refi (worth the trouble). The time in your first loan doesn't matter, you are paying less interest for the same amount of money, with no fee hurdle to overcome and really nor does the time you plan to stay in the house matter. Typically you will have to pay for an appraisal and you may have a few other small fees. If you are following this advice be sure that it really is a no closing cost loan and not a loan with closing costs rolled into the loan.

Second, the typical loan with typical closing costs. These loans have a slightly lower interest and charge fees. These fees may be rolled into the loan, so sometimes they look like no closing cost loans. The determining factor on whether or not you should refi with a closing cost loan is how much longer you plan to stay in the house (again note that how long since your last mortgage is not a consideration.) A quarter point interest savings are about $246/per $100,000 financed for the first year and drop by about $8 per year. So if you are going to be in the house even a few years mortgages with closing costs rolled in tend to overtake no closing cost refi's.

Now for the modifier. You are asking about a cash out refi. Which I really don't like. Banks will charge you extra for the cash out option. You can avoid the upcharge by taking out a home equity loan now and refinancing both loans in a few months into a regular refinance. I don't know the amount you paid for the house, and if it is low enough it may not be worth the trouble of doing two loans over the next few months. But with the upcharge for cash out, you are essentially paying a decent amount extra in interest on the entire amount to get a 30k extra, if that loan is high enough the extra interest fees tend to turn them into pretty crappy deals.

This is how the housing bubble started. -

Nothing in this thread has anything at all to do with a housing bubble. Not even in the least. Housing bubbles happen because real estate appreciates at unrealistic and unsustainable rates and there is nothing you can do about them. There is no fix for a housing bubble, people start demanding more money...other people pay it, and boom...housing bubble. The only thing you can do is try to time when to jump off. Good luck with that because everyone knew we were in a housing bubble in 2008 and almost everyone missed the jump.

Buy a house that you are a OK keeping, do the work it needs while making sure that you are able to continue making the payments, if it appreciates into the stratosphere you can consider cashing out and moving to an area that is not on a bubble. Other than that continue to make the payments that you kept reasonable and you will be fine.