If you have built up a lot of equity in your home, a cash-out refinance mortgage loan is a good choice. If your home is worth $125,000 and you owe $75,000 on it, you could refinance the debt and get up to a $50,000 cash loan against the equity in your home. The money can be used to pay off debts, fix up a house, or even put it in the stock market. Even though a cash-out refinance can be great, there are a few things you should think about before getting one.
How much do you have to pay to refinance?
Most of the time, the fees for a home equity loan are less than those for a refinance. When you think about higher loan fees and the possibility of points, refinancing your home can cost you a lot. If you already have a good interest rate on your loan, refinancing to get a cash-out option might mean paying a higher interest rate on a new loan. Instead of a cash-out refinance mortgage loan, you might want to think about getting a home equity loan.
How quickly do you need the cash?
When you get a home equity loan, you can get your money faster. Most of the time, it takes only 5 days to close. Cash-out mortgage refinancing can take a long time, so if you need the money right away, it might not be the best choice.
Keep away from people who try to trick you.
There are some lenders who do something called "flipping loans." They persuade you to refinance your house and take out some equity to pay for one or two projects. A few months later, they ask you to refinance again and try to convince you to get more cash from the value of your home. Their plan is to keep having you refinance, adding big fees and possibly raising your interest rate, until you have so much debt that you lose your house. Many elderly people who own their own homes have been hurt by this particular scam.
Using the equity in your home to get cash can be a good idea, but you should compare a cash-out refinance mortgage loan to a home equity loan and choose the plan that works best for you.
