To Cash Out or Not to Cash Out is the Question

To Cash Out or Not to Cash Out is the Question.

 

A cash out refinance mortgage can be a great tool for homeowners.  There is no limit as to what you can do with cash that you receive from a refinance mortgage.  The idea is simple.  You can refinance your home for more than what you currently owe.  The difference is given to you in the form of a check or a wire transfer.

 

Your monthly mortgage payments are likely to increase but there are some caveats to that.  If you are paying off debt with the cash out then you are eliminating payments on that debt.  This will most likely offset the difference in mortgage payment and will amount to a net savings each month.  You may also be obtaining a lower interest rate on your mortgage.  You may be able to lower your interest rate enough to offset the amount of cash out that you are getting, thus not increasing your monthly payment.

 

What else can you use a cash out refinance mortgage for?  You can make home improvements and increase the value of your home.  Make room for a new addition to the family or put in the pool that you have always wanted.  If your home is in need of some general improvements, a cash out refinance mortgage can be a great way to upgrade your home.  Keep in mind the amount of time that you plan to live in your home.  If you will be staying for less than 5 years it may not make sense to increase the amount that you owe on your property simply to make some improvements.  Often times you will spend more on improvements that you will recoup when selling your home.

 

Need some cash out to pay for college?  With the rising cost of college tuition your home can be a great tool for making dreams of college a reality.  If you have equity in your home you can use that equity instead of racking up student loans.  Many homeowners may have the ability to pull cash out and amortize the payments over 30 years or more.  This has become an increasingly popular way to help pay for you or your child’s education.

 

Do not abuse a cash out refinance mortgage.  It is probably not a wise decision to use the equity in your home for short term purposes.  Things such as taking a vacation may not be the best use of your equity.  Spending your equity on things that will not help build long term value is generally considered taboo.  This is a blanketed statement and some borrowers may be in a very good position to borrow some additional cash for things such as a vacation.  I would advise anyone considering this to consult a mortgage professional about your specific situation.  Paying for a wedding or a honeymoon very well may make sense for your situation.

 

The basic idea is quite simple.  Do not abuse the equity that you are building in your home.  A <a href=”http://freehomerefi.com/”>cash out refi</a>nance mortgage should be seen as a tool, and just like a hammer it can hurt you.  If you understand how to use it, and use it for the right reasons, it can be very effective and very helpful for you.