When is Cash-Out Refinancing a Good Option?
For homeowners who have established equity in their homes from paying off a primary mortgage, there may come a time where they need the finances for a project or other use, and interest rates are lower than the existing mortgage. This may be a perfect time for a cash-out refinance. Let’s take a look at this option and how it can help you.
A cash-out refinance occurs when a homeowner refinances at a lower rate than an existing mortgage, but requests more money than is needed to pay off the mortgage. So they are getting cash out of the refinancing, hence the name given to this type of loan. There are good and bad times to use a cash-out refinancing option.
A good time is when the interest rate on refinanced mortgages is lower than the existing interest rate on your mortgage. A bad time is when current interest rates are not different from the existing mortgage since you will have to pay closing costs to refinance the mortgage with little advantage gained by it.
A cash-out refinanced mortgage is different from a home equity loan. When you obtain a home equity loan you are adding additional debt to the existing mortgage you already pay. A cash-out refinance replaces the existing one with a new mortgage at a new interest rate, as well as obtaining additional finances you need. There are other differences, such as the number of years to pay off each type, but the major difference is only having one mortgage when you use a cash-out refinance.
How do you know if a cash-out refinancing mortgage is right for you? If you see a significant difference in interest rates between your existing mortgage and current rates, a cash-out may be a good choice. If you are well into your mortgage, and only have a few years left to pay, it’s probably not your best choice. Ask your Hard Money Investor to run interest rate numbers for you, or look up interest rate calculators online and run some comparisons.
If you need money for a project, and don’t qualify for a conventional cash-out refinance or home equity loan, AHL Hard Money Network may be able to help. Our investors are ready to offer you money secured by the equity in your home. Give us a call and let AHL Hard Money Network help.