You've probably gotten a lot of emails, letters, and phone calls from lenders who want you to cash out the equity in your home. There are many reasons to do a cash-out refinance, like paying off debt, getting a better rate or term, paying less each month, making home improvements, paying for college, etc. People often forget that you might be able to make more money with $10,000 if you invest it well. This is a good reason to cash out the equity in your home. Don't forget that you can deduct mortgage interest from your taxes (up to 100 percent of the value of your home). Even if you have average or better credit (usually a FICO score of 640 or higher), you can now take out 125 percent of the equity or value of your home.
When considering a cash-out refinance, the most important thing to think about is what you will do with the money you get. What are your short-term and long-term goals for your money? How long are you going to live there? Second, ask yourself if you are getting the best deal. How much will the fees be to start the loan, and how much will you have to pay each month? Most origination fees are "rolled into" the loan, which means they will be deducted from the total loan amount after you pay off your other mortgage(s) and debts.
Many lenders see cash-out refinances as a slightly higher risk than rate-and-term refinances, so they may change the rate to reflect this. Find out how much this extra risk is costing you. Also, keep in mind that when you start a new loan, you start a brand-new term. If you've been paying on a 30-year mortgage for a few years, you may be getting another 30-year mortgage. See if you can afford a shorter term, like 15 to 20 years.
Research is the most important thing. Compare the loan offers and lenders. Make sure you're getting the best deal and best rate for your needs.
