What is a Cash Out Refinance?

Owning a home comes with its fair share of advantages. For most homeowners, the opportunity to build up equity is what draws them in.

And as we saw in 2016, median home sale prices rose around 5.6%. That trend should continue in 2017, with median home sale prices projected to increase by 5%. Amazingly, if we look back to 2011, home prices have risen a substantial 40%.

Clearly, many homeowners have built up a significant amount of equity, which provides them with the unique opportunity to tap into that capital with a cash out refinance.

What is a cash out refinance?

With a cash-out refinance, you get a loan for more than what you owe for your mortgage, taking the difference in cash.

For example:

You have a mortgage and your remaining balance is $130,000. With a cash-out refinance, you could refinance and get a new mortgage for $150,000, and take home a lump sum of $20,000.

Just as you would with any other refinance, you will be getting a new mortgage rate. That means you have the opportunity to not only take cash out on the equity you’ve built up, but lower your monthly mortgage payments as well.

Click here to get today’s latest mortgage rates (Mar. 2, 2017).

The fact that home prices are rising is important because there are certain limits to how much equity you can cash out. That number will depend on what type of loan you refinance to, but will typically range from 70%-100% of your homes value. So the more your home is worth, the more equity you will be able to tap into.

Reasons homeowners get a cash-out refinance

There are no restrictions on how you use the lump-sum, so you could technically head straight to the casino and put it all on black if you really wanted to. However, that’s probably not the smartest decision. Here are some of the most common reasons why homeowners get a cash-out refinance:

• To make home improvements
• To finance a business or a second property
• To help pay for college, medical expenses not covered by insurance, etc.
• To fund other investments
• To pay for vacation
• To pay off high interest debt

You have to think long and hard about why you need the cash, because:

1. You’re house is now the collateral for whatever you decide to purchase.
2. You could be paying off the loan for 15+ years, depending on the term of your loan.

How do you know if you should get a cash out refinance?

Ideally, you should be refinancing when you can get a new mortgage rate that is lower than the one you currently have. If mortgage rates have in fact gone up, you might be better off getting a home equity loan or line of credit.

It’s also best to use the money towards clear, meaningful goals, such as a home improvement, as opposed to a vacation. After all, do you really want to be paying off your vacation for 15-30 years? Maybe you do, maybe you don’t. It’s entirely down to your personal preference, just make sure that you’ve gone over all of the finances and it makes sense.

Bottom line

Mortgage rates are still hovering at historically low levels, and home prices are projected to rise throughout 2017, making right now a great time for homeowners to think about getting a cash-out refinance.

Click here to get today’s latest mortgage rates (Mar. 2, 2017).

from Total Mortgage Underwritings Blog http://ift.tt/2mQhpuP