In the real estate world refinancing means replacing an existing mortgage with a new one that involves favorable terms to the borrower. After refinancing, the borrower would have to make less monthly mortgage payments, negotiate to decrease the interest rate and term of the loan.
In this mortgage financing option, the new amount is higher than the existing home loan. You receive the difference in the amount as cash. The additional money can be used for home remodeling projects, any other real estate investment or for other purpose. It offers competitive interest rates.
Get the help of a private loan lender to make the approval process smoother. The financial experts at Capital Fund have extensive knowledge on real estate investment. Get in touch with them today, clarify your queries and see if cash-out refinance would work for you.
How does it work?
You withdraw a portion of your mortgage as a lump sum. Since the loan amount is now higher, you’ll be required to pay a slightly higher interest rate when compared to traditional refinance. Generally, you are limited to withdraw up to 80 percent of your home value.
Why opt for cash-out refinance?
- Low interest rate: The common reason people opt for refinancing is to lower the interest rate whilst taking a larger loan.
- Make value-added changes to your home: Home owners can use this cash withdrawn to renovate their home and deduct their mortgage interest from their taxes.
- Consolidate and pay-off higher interest debt: This isn’t the case for everyone. Do the math and check if cash-out refinancing reduces your interest rate. You should also be able to put the extra funds to good use.
- Pay tuition fee: You can use your home’s equity to pay for your adult child’s college if the student loan rates are comparatively higher than the cash you receive with cash-out refinance.
Risks associated with cash-out finance:
- It increases the current interest rate for some in which case it is not a wise move.
- Some lenders let you borrow up to 90% of your home equity. This implies you’ll have to pay PMI again after cancelling it which adds up to your overall borrowing cost.
- See that you don’t end up prolonging the duration of debt-repayment.
- Failing to repay the loan would put you at a risk of losing your home.
Before going forward with cash-out refinancing ensure if the results are beneficial. It is a decision to be taken after serious scrutinization.