4 Things To Know About Cash-Out Refinancing

Are you interested in using a cash-out refinance, but don't know a lot about it? It will help to know the following things about this type of home refinancing

What Exactly Is A Cash-Out Refinance?

The purpose of using a cash-out refinance is to take out a loan that is more than what your original mortgage was. This is possible when the value of your home will be appraised for a higher value, which creates more equity in your home. You will use the money to pay off the existing mortgage that you have, then get a new mortgage with a higher principal balance.

What Can You Do With The Money From A Cash-Out Refinance?

You can use the money from a cash-out refinance to do whatever you want. However, it is best to use the money to improve your financial situation in some way. For example, some people prefer to use the money to improve their home, which will further increase its value for when the time comes to sell it. 

Another thing that people often do is use the money to reconsolidate debts since a cash-out refinance is going to be cheaper than the interest they pay on credit card debts. You can even use the money to purchase another property to rent for additional income. 

How Much Money Can You Borrow From A Cash-Out Refinance?

It is always worth shopping around with different lenders because each will have its own requirements for how much money you are allowed to borrow. It is common to require that you put a certain percentage back into the equity of your home so you are not left with nothing. One lender may require a high percentage, while another lender may require less. It also depends on your credit history and if you are viewed as a high or low-risk lender. 

When Is A Cash-Out Refinance Not Worth It?

Any time you refinance your home you will have to pay closing costs to the lender that are associated with the loan. That means you need to plan to borrow enough money to make the cash-out refinance worth it after you pay closing costs. For example, If you only need to borrow a small amount of money, it may not be worth using a cash-out refinance because of the thousands of dollars you need to pay in closing costs. It may be better to get a personal loan instead. 

For more information about refinances, contact a local lender.