In the middle of a mortgage refinance boom, many people are asking: is a Cash-Out Refinance worth doing right now? The answer really depends on if you need to put cash in your pocket.
That’s what a Cash-Out Refinance does. Basically, you’re taking out a brand new mortgage, replacing the one that you have now. This new mortgage balance will be higher than the previous one by the amount that you’re taking out.
At the end of the mortgage transaction, you walk away with a check for the difference.
How Does a Cash-Out Refinance Work?
A Cash-Out Refinance uses the equity that you have built in your home through home value rising and your monthly payments to fund the money you take out.
You have to have a percentage of equity in your home before you can take cash out.
For example, if your home is worth $250,000 and you currently have $150,000 left on your mortgage, that gives you $100,000 in home equity, which translates to 40 percent of the home’s value.
You need to have at least 20% of your home equity left at the end to avoid paying PMI (Private Mortgage Insurance), so that will leave you with $50,000 you can borrow.
You would then take out a new mortgage for $200,000 (the $150,000 that you currently owe, plus $50,000) and get a $50,000 check at your closing. Then you would be responsible for closing costs which are usually anywhere from 3-6% of the total mortgage. Those can be rolled into the loan, so you’re not necessarily cutting a check that day.
So Is a Cash-Out Refinance Worth Doing?
If you need to put cash in your pocket, it absolutely is. You’re basically borrowing money at a very low rate of interest. You can use that for anything you want, from paying off credit cards and other high-interest debt to paying for life events like college or weddings to making improvements or repairs to your current home.
If you are just looking to put money in your pocket for a rainy day, it CAN be a good idea when rates are so low, but it’s a very long-term loan for a maybe.
All-in-all, if you are a homeowner who has bills to pay, repairs to make, or credit card companies breathing down your neck, you can likely benefit from a Cash-Out Refinance.
Plus, as we enter the holiday season, saving money on your mortgage could be the difference between getting your child the toy they want or not.
Call The Home Loan Expert Team at 800-991-6494. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?
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