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A few fun facts regarding Cash Out Refinance

A few fun facts regarding Cash Out Refinance

November 15th, 2019

A cash-out refinance replaces your current home loan with a new mortgage for more than your outstanding loan balance. You withdraw the difference between the two mortgages in cash and put the money toward home remodeling, consolidating high-interest debt or other financial goals.

Put simply, if you’ve paid down your current mortgage balance and/or home prices have increased since purchase, you may have equity in your home that you can access via cashout refinancing to use for other expenses, such as funding home improvements, paying for college tuition, or paying off credit cards.

With today’s mortgage rates so attractive, it might be possible to refinance your mortgage, get cash out, and obtain a lower interest rate, all in one transaction. This might be especially true if the value of your home has increased significantly since you took out your original mortgage.

When mortgage refinancing, if a borrower elects to take “cash out” in addition to changing the rate and term of their existing home loan, the new mortgage balance will be larger than the original. That’s right, these funds don’t appear out of thin air, nor is it free money, even though you get cash in hand!

I kind of liken this to the old line, “Do you want fries with that?” But instead it’s, “Do you want cash out with your home refinance?”

In short, you’re taking out a larger loan when you execute a cash out refinance, which means monthly payments will likely be higher. You can use my mortgage payment calculator to see how much more you’ll pay each month.

Once the refinance loan is complete, the new loan will consist of the original balance prior to the refinance plus the desired cash out amount, less closing costs. So expect both the size of your mortgage and your mortgage payment (depending on interest rates) to increase in return for a cold, hard lump sum of cash.

As noted, if you are able to snag a lower interest rate and get cash from your home, you’ve hit a home run! You’re saving money and you’ve got money in the bank.

 

 

 

 

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