cash-out refinancing
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Cash-Out Refinancing
The average interest rate remains historically low and home owners may be interested in refinancing their
current mortgage or cash-out refinancing.
As you pay off your mortgage, you accrue more equity. As this builds up you can gain access to cash to use on
emergencies or other expenses. Cash-out refinancing is one way you can use your home as a tool to get money.
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Associated Perks
You will still have the same amount of equity, your new mortgage will just encompass the money you took to
use on other expenses. You continue to build your equity on top of the amount you had prior to applying
for cash-out refinancing.
In addition, many homeowners apply for cash-out refinancing to nab a lower interest rate. So while you
get access to cash, you also cut down the interest rate affixed to your new mortgage.
Investing Your Cash
Cash-out refinancing can be used to increase the value of your current home.
For example, if you plan on selling your property and feel that your kitchen is outdated, cash-out refinancing can provide you with the ability to pay for renovations
before putting your house on the market.
You can increase the value of your property and make a higher profit when you sell your home.
RequirementsZillow, an online real estate company, noted that
some fees apply to cash-out refinancing just as they would to conventional refinancing. These include: Closing costs, interest
on the cash received and interest on the mortgage amount
Some homeowners may not qualify for cash-out refinancing. Lenders want to ensure -• You have a credit score that is typically higher than what is
necessary for traditional refinancing. • You have built adequate equity which also lends to the loan-
to-value ratio being no more that 85 percent. • The home owner has resided in the home for at least a year.
Know Your Limits
According to Bankrate, many lenders will limit how much cash you can take out. Typically, they will
allow you to cash out a max of 80-90% of your built up equity. In some instances you can borrow more, but may be
required to purchase private mortgage insurance.
In addition, you should ensure that you know how much money you can afford to cash-out. If you take out money for
expenses that don't provide you with a return, such as a vacation, evaluate whether it is something you can
realistically afford down the road.
Take Careful Consideration
"People have a budget in mind and they will manage
to that budget versus saying, 'Give me as much
money as possible.’ It varies by the consumer and their personal situation, but they won't necessarily push the
outer boundaries of it.“- Kelly Kockos, Home Equity Product Manager for Wells
Fargo.
"Too often these loans have made our houses a bank account and made the equity very accessible,
which is not always a good thing. There is no reason to tap home equity unless you
absolutely have to.”- Alan Moore, Certified
Financial Planning Professional for Serenity
Financial Consulting
VS.
Deciding If It’s For You
By piecing together a clearer picture of what cash-out refinancing entails, you can make an educated decision
and feel more confident moving forward.
You will want to calculate whether the extra fees and expenses for refinancing are worth moving forward and
how you will ultimately use the money you decide to cash-out with.