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Submitted by: CL Haehl
There s no doubt you have been inundated via e-mail, postal mail or even phone calls from lenders trying to convince you to cash out the equity in your home. The reasons for a cash out refinance are endless–debt consolidation, better rate/term, lower monthly payment, home improvements, college education financing, etc. One commonly overlooked reason to cash out equity in your home is that you may possibly find that $10,000 could earn you more money if it s invested wisely. Don t forget that mortgage interest is tax-deductible (up to 100% of the value of your home). You can even now pull 125% of the equity/value of your home with average and better credit (usually a FICO score of 640+).
The most important thing to think about in pursuing a cash out refinance is what you will do with the cash you re getting. What are your short and long-term economic goals? How long do you plan to be in your house? Secondly, are you getting the best deal? What are the fees associated with initiating the loan and what will your monthly payment be? Most origination fees are rolled into the loan, meaning they will be subtracted from the total loan amount after paying off your other mortgage(s) and debts.
Many lenders see cash out refinances as a slightly higher risk than a rate/term refinance mortgage and may adjust the rate accordingly, so find out what that premium is costing you. Also keep in mind that when you originate a new loan, you are starting with an entirely new term. If you ve been paying on a 30-year mortgage for a few years, you may be beginning another 30-year mortgage. See if a shorter term (e.g. 15-20 years) is affordable for you.
Most importantly, do your research. Compare lenders and loan offers. Make sure that you are getting the best rate and the best deal for your situation.
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