Cash Out Refinance
It’s Road Tripping Time With This Refinance
To first understand how a cash-out refinance works, you must also know what equity is. Equity is the amount of your home that you already own. When you do a cash-out refinance you essentially “cash-out” the equity in your home. For example, let’s say you take out a mortgage for $200,000 and within five or so years you pay off $30,000 of it. You could take out a new loan, through refinancing, for $220,000 and part of the new loans value would convert into “cash” to use as you wish.
A Solution to Financial Woes
Homeowners often have a chunk of change tied up in their monthly mortgage payment so it can be hard to find enough leftover money to pay off other loans. This is where the cash-out refinance comes in handy. Let’s say you have an auto loan that is at a higher interest rate than your mortgage and you would like to get it paid off ASAP, but are finding that monthly payments only make a dent to your initial loan amount. If you were to cash-out the equity in your home through a cash-out refinance, you could pay for that vehicle entirely. This is the case for many other financial burdens as well: credit card debt, hospital bills, a wedding ring (wink, wink). Some people even choose this type of refinance so that they can pay for their child’s college tuition or taking the vacation they have always dreamed of.
The Downside to a Cash Out Refi
There are not many times in a person’s life when a big stack of cash doesn’t come with a price, and the cash-out refinance is no different. If you were to cash-out the equity in your home it would mean that you would lengthen the term of your mortgage, so it is not a good option if you are only 5-10 years away from paying it off. A cash-out refinance would also cost the borrower thousands of dollars for closing costs. However, the better your credit score, the lower these fees will be. Just remember, your new mortgage will have to be paid off, so the money from a cash-out refinance is not free cash.
Where to Find the Help You Need
Almost any lender in the business can assist you in a completing a cash-out refinance. Most lenders will want to see your credit score, an appraisal on the home, and an income-to-debt ratio, only to make sure you will have the ability to pay off your new mortgage. If you believe that the pros of a cash-out refinance outweigh the cons, contact a lender to get a second opinion and to possibly complete the first step toward your refinance.