When Cash Out Refinance is a Good Idea
A cash out refinance is a replacement of your first mortgage, and there are many benefits that you can receive as a result of going through with a cash out refinance. You should definitely consider all the necessary factors however before going through with a cash out refinance, in order to ensure that now is going to be the best time for you to do something like this.
How it Works
With cash out refinancing you are basically refinancing your mortgage for more than you currently owe, and you are then able to keep the difference and put this towards an investment, to pay off other bills, or just as pocket change.
Although cash out refinancing and home equity loans are similar in certain ways, there are many major differences as well. For one, a home equity loan is a separate loan on top of your mortgage whereas a cash out refinance is a replacement of your first mortgage.
The interest rates are also different from home equity loan to a cash out refinance, as the interest rates on a cash out refinancing are usually lower than the interest rate on a home equity loan. This is one of the most favorable and advantageous features of cash out refinancing, and as well closing costs tend to come to a lot more with cash out refinancing.
Think Before You Do
Even if cash out refinancing sounds like a great option you are going to want to make sure that you have all bases covered before going ahead with it, and for instance it does not make sense to refinance a higher amount at a higher rate so if your current mortgage is at a lower interest rate than you could get now by refinancing, it is probably going to be better for you to get a home equity loan.
Remember that you have lots of options here and that if you go about it the right way you can benefit from hundreds to thousands of dollars and simplify your life.
Cash out refinancing offers great flexibility and variety and you can obtain extra cash for home improvements, paying off a purchase money junior lien used for any purpose, or paying off a leasehold interest. Also remember that all related closing costs, financing costs and prepaid items can be rolled into the new loan amount.
If you are ever not sure if a cash out refinance is right for you then you may want to speak to a financial advisor to get a firsthand opinion on whether this is going to be the best idea for you.
