What are the benefits of a cash-out refinance?
A man or woman’s home is his or her castle, but life is not always a storybook and it’s not uncommon for us to go through chapters in our lives when the bills get out of control. In these cases, the financial commitment you’ve shown to your home can come to the rescue in the form of a home equity loan or a cash-out refinance. A Licensed Lending officer at (888) 983-3270 can review your situation.
With a home equity loan, your monthly mortgage payment gets split up for principal, interest and, depending on your loan structure, taxes and insurance. The amount that goes toward the principal balance, coupled with the rise in home values in your area, increases the equity in your home. You can take a home equity loan out on that amount, provided you maintain proper loan-to-value limits. The advantage is you can access cash for a variety of purposes without changing the terms of your first mortgage.
Cash-out refinance entails replacing your current mortgage with a new one that includes the original loan balance plus the amount of cash you’d like to ‘take out’ along with any costs, if applicable. Basically, that means you can refinance the existing loan, once any liens are paid off, for more than the current mortgage and take home the rest in cash.
What makes the most sense?
That’s up to you to decide.
There are essentially two types of refinance loans: rate/term and cash-out. The rate/term gets you a better rate or terms on your loan, but you cannot pull money out. A cash-out refinance gives you a new mortgage for a higher amount, and you take the difference home in cash. This is useful to pay off high-interest credit cards, old debt or perhaps even student loans, depending on their rates.
A standard home equity loan is also known as a ‘second mortgage.’ You can get an affordable rate, but it will most likely be higher than that of your first mortgage and you will be making payments on two loans each month. Even if you are very happy with the terms of your current first mortgage, once you add the two payments together, a cash-out refinance might be a strong option in the short or long term.
Things to know
- Refinancing a regular mortgage means you will pay closing costs, although they can often be rolled into the loan.
- Cash-out refinancing replaces your first mortgage with a new first mortgage, which will carry different terms.
- Home equity loans are second mortgages that must be paid concurrently or consecutively with the first one; check with your lender – this can be the best option if you have an excellent rate on your first and you don’t want to lose that in a refinance.
- Creating an option-assessment list with your licensed lending officer is recommended so you can get all the information as basic dollar amounts and see how it will fit into your budget.