How a Cash-Out Refinance Can Save Borrowers in Distress

Okay homeowners…gather around as I have some important information to share with you!  Whether you have owned your home for several months, several years or even a few decades; this information can help you out of the darkness and into the light.  What I am talking about is using your home other than for shelter, the feeling of ownership and for entertaining others.   Your home can actually provide money for those who need extra cash to pay off overdue bills, medical expenses and for other reasons that would help to ease undue tensions.  This can be achieved by borrowing against your home’s equity and there are several options for a homeowner to choose from.  Out of those several options, one way would be to refinance and get cash out from your home’s equity, which is known as a Cash-Out Refinance.  So, sit back and pay attention while I explain not only what this process is but how it can answer the call from a borrower in distress.

 

What is a Cash-Out Refinance?

photodune-3845218-happy-family-on-vacation-xsFOTORLet’s begin by explaining what the process is.  Basically, the borrower is taking all refinancing of debt would be known as “cash-out,” so the money that is collected would be utilized for anything other than repaying the existing lien.  The owner of the home will have the opportunity to either work with the same mortgage company or a different one to take out a new mortgage that is more than the original one. What the lender will do is figure out what is the equity of the borrower’s home; subtract the amount of the mortgage that needs to be paid off and then the amount left over will be given to the homeowner.  For example, an individual has a mortgage on their home valued at $110,000.  When researched, a lender finds out that the home’s equity is worth $230,000.  The lender will take the original loan and subtract it from the equity to get the amount of $120,000; thus, this figure is now the equity and can be liquidated.  Keep in mind that the loan must be bigger than the first mortgage.

 

What to Know before Taking out a Cash-Out Refinance Loan

photodune-583349-family-picnic-xsFOTORNow that you have the basics regarding this type of a loan, those needing some extra money can go to their original lender and take out this new loan, right?  Unfortunately in life, those who immediately dive right in find out too late that there is no water in the pool and suffer disastrous consequences.  Before rushing to get involved in refinancing your home, there are several things that the owner should be aware of.  First, make sure that the equity of your home is worth taking out a new loan.  Those who unfortunately discover their equity is not very desirable should take a step back and maybe reconsider this type of a loan.  Another thing a borrower should be aware of is that this type of refinancing does have costs in order to follow through with this option.  Depending on the lender, extra costs could come up in order to process the loan.  Though the terms of this refinance usually favors the borrower, such as a lower interest rate from the original loan, some lenders may charge higher rates, monthly payments may be higher and the process of paying off the loan will be longer than the original.  The above information may discourage homeowners from seeking out refinancing their home, but understand that life always have trade-offs and people need to watch their backs before committing to anything involving finances.  Now that I am done reminding owners to be cautious, let’s look at how beneficial this can be.

 

Benefits of a Cash-Out Refinance

photodune-359857-relaxing-family-xsFOTORI hope those who are reading this are familiar with the phrase, “saving the best for last.”  Now that we have gotten the scary stuff out of the way, let’s see why this type of refinance can help produce cash to those who need it.  Remembering how the borrower needs to pay attention to possible higher interest rates as well as a longer period of time to repay this loan, this can be turned around to be positive for the owner.  Interest rate for this refinance typically can be lower than your original loan so that would be more money down the line for the borrower.  Another thing that is important to realize is making the repayment schedule work in your favor.  Some may wish to pay back the loan more quickly to avoid paying interest rates that could incur down the road.  Obviously, the monthly payments would be adjusted to suit your needs.  Borrowers needing more time would do the opposite in regards to smaller monthly payments as well as extending the length of repaying off the mortgage.

When deciding to refinance a home, a borrower needs to know there are options available to choose from.  One option is known as a Cash-Out Refinance.  First looking at how this option works, a homeowner can see that the equity of their home can be used to pay off anything but the new lien.  Now understanding what this process is, the borrower needs to understand that there are certain things to be aware of, such as hidden costs and possible higher interest rates that may concern those that want to refinance their home.  Once understanding the possible pitfalls and the benefits that this type of a loan can provide can easily get the borrower back on track with refinancing their home.  After all, who wouldn’t want to receive a large sum of money, once the refinancing is complete, and not only to have your original mortgage paid off but to use the extra cash where it is needed the most?  I hope I have helped explain to any owner of a home in need of extra money how refinancing your home can be helpful.  If so, then I would be honored to have pulled a homeowner trapped in darkness and brought them into the light.

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