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Need Cash? Access Valuable Cash with a Cash-Out Refinance

Sheryl Landrum
LoanBiz Columnist

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Let's face it, cash is tight for most of us these days. However, one of our best sources of available cash can be in the equity we hold in our homes. If accessing cash through a refinance of your current home sounds good to you, here is what you need to consider before refinancing your home loan.

What to Consider When Thinking About a Cash-Out Refinance

There are two ways to access your home's equity. One is to refinance your current mortgage and the other is to take out a home equity loan or line of credit.

Consider this when refinancing your current mortgage:

  • Can you lower the interest rate on your current mortgage? If your current mortgage interest rate is higher than what you can get today with a cash-out refinance, then refinancing your current mortgage may be your best bet.
  • Is your current mortgage a high-risk loan? Many homeowners with adjustable rate mortgages are finding it hard to manage their mortgage payments when their interest rates adjust. If you have an adjustable rate mortgage you may wish to refinance into a more conventional loan such as a 30-year fixed rate mortgage.
  • What are your long-range plans? Are you looking at a refinance with cash out to improve your home for your enjoyment or to sell? Refinancing your first mortgage is usually more expensive than getting a home equity loan or line of credit, so if your plans to stay in your home are short lived you may consider a home equity loan instead.

When is a home equity loan your best option for a cash-out refinance?

  • If you have a great interest rate on your primary mortgage but want to access some home equity, then a home equity loan or line of credit can be your best bet. While the interest rate is generally higher than when refinancing a first mortgage, terms and conditions regarding home equity loans are usually very flexible.
  • Home equity loans and lines are generally easier to qualify for and cheaper to get than refinancing your primary mortgage for cash out. If you have good equity and credit, you can get a home equity loan or line for little or no cost and with a lot less paperwork than when refinancing your primary mortgage.

Remember, if you are considering a cash-out refinance your best protection for getting the right home loan at the best cost is to use a reputable lender and to be proactive in the mortgage process. Make sure you get referrals and make sure your loan officer is licensed. If you protect your largest asset when refinancing, you allow yourself more opportunities to access cash in the future.


About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.

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