Should I cash out when I refinance?

I am in the process of refinancing my home loan. I have a second mortgage, and the lender wants me to pay it off in order to go through with the refinance. They gave me two choices. 1) Pay off the 2nd mortgage in cash and go through the refinance. or 2) Get a cash out to pay for the 2nd mortgage, in effect consolidating both mortgages into one. The additional charge for the cash out is around $1500.





I'm wondering if I should use my savings to pay down the 2nd mortgage of $80,000. But since my new mortgage rate is less than 5%, I'm wondering if I could do better than that by investing the $80k in a conservative mix of stocks, bonds, cash, and gold mutual funds and come out ahead over the next 20 years.





Any comments? Is now a time to be conservative and minimize debt, or should I try to beat 5% by investing?|||if you are going to refi, you would have to pay off all loans I imagine - are you sure you even have ANY equity in teh house at all that would allow you to refinance?





if you have 2 mortgages, I doubt you had much equity left after taking that 2nd mortgage and most homes have gone DOWN in value at least 20% in the last 4 yrs and they usually only let you refi up to 80% of your homes value





a "conservative" mix of investments won't get you much more than 5% return most likely





you should be looking to get the mortgage paid off as quickly as possible, not pulling cash out of it and going back to a 30 yr mortgage|||I would try to keep 6 months living expenses in your savings, in case something happens. For me, that security would be worth more than any slight financial advantage by fiddling with the mortgages. If I already had those living expenses on hand, then I would take the remainder, and in combination with a larger first mortgage, pay off the 2nd. A first mortgage will generally have a lower interest rate, anyway, because it's first in line.





I would not raid any 401k or other retirement savings to do this.





Also, consider this question. Would you take equity out of your house in order to have cash to invest? My answer would be no, and my advice to most people would be no. But you'll have to answer for yourself.