Cash-Out Refinance Basics.
Why refinance and cash-out on equity?
Here are some reasons to consider doing a cash-out refinance:
· To turn equity sitting in your home into productive capital/cash. You may have paid your mortgage down and have a build-up of equity. Or, you may have experienced a dramatic rise in the value of your home. Either way, you have money and it’s sitting, parked in your home. You may want to take out a new mortgage with a larger loan amount, allowing you to extract equity in the form of cash. We always suggest using this equity cash productively; paying down other debt or expenses with higher interest may be worthwhile. Sound investments in other assets may also be worthwhile. With a larger loan amount, using your home equity wisely is crucial. This is known as cash-out refinancing or refinancing to extract equity. One of the distinct advantages is that the rate will be markedly lower than other forms of loans; this is because your home serves as the collateral, and which lender wouldn’t feel safe using your home as collateral?
· Is mortgage refinancing right for you?
We will always ask a few questions while assessing your decision to refinance.
How long do you plan on being in your home? If you plan on selling your home in a few years, you may never recoup the cost of refinancing. If you have longer term goals with the home, then recouping the costs shouldn’t be an issue.
Do you have a prepayment penalty? If you do, then that cost must be factored into the cost of refinancing. Recouping the prepayment must be a real potential when assessing overall costs.
What are the costs of the new mortgage? With refinancing, there is always a cost. Whether you only pay an appraisal fee, or third-party fees like title and escrow, or fees such as origination charges, there are always fees. When you take out a new mortgage, you must assess the overall costs of the loan.
Is there a true difference in the borrowing costs? Look the at the APR. The annual percentage rate factors in not only the nominal rate, but also your costs over the duration of the loan. The APR is a direct function of the amount paid over the term of the loan. So analyzing that will provide a great deal of insight as to the benefits of refinancing (or lack thereof).
Will your tax savings adjust? Mortgage interest can be claimed on your tax returns as a deduction. So while you may lower your rate and payment/interest, you may lose some tax incentives you otherwise would have enjoyed. You may want to consult a tax accountant or whoever prepares your tax returns.
For a free analysis about potential benefits of refinancing, use our Refinancing Calculator. Or simply contact us today. You can quickly apply with MortgageLoan Corp.
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