Tuesday, July 18, 2017

What Is A Cash-Out Refi And What Are My Options?

By Justin Woodbury

A cash out refinance is when the owner of a property takes out a new loan that replaces the old loan plus an additional amount that the borrower receives as a liquid amount. This cash can be used like any other cash to purchase or invest as they desire.

This is different from a standard refinance in that with a standard refinance the loan is replaced with another similar loan but with a different term, interest rate or interest type. For example, a homeowner or borrower with an adjustable rate loan could refinance into a fixed rate mortgage they thought the interest rates could be moving upward in the near future. This would allow them to get into a predictable mortgage situation during a time of volatility.

After the most recent housing and financial crisis, the economy was in the dumps. In order to stimulate the economy, they lowered interest rates. They kept lowering interest rates until they hit rock bottom and broke record lows. Because of this stimulation of the economy, you are likely to get a much lower rate at the date of this writing than before the financial crisis.

Because the interest rates on a home loan are secured by real estate, you are likely to get a much lower interest rate on a home loan than you could for a personal loan or credit card. It is for this reason that many people all across the United States are turning to cash out refinances or home equity loans and second mortgages for their debt consolidation purposes.

Some home owners have a bunch of untapped equity in their home. This equity can sometimes be put to work by using a cash out refinance to free up a significant amount of cash flow by consolidating debts. Sometimes it makes financial sense to trade high interest for low interest debt and possibly even pay the home off more quickly. If you are concerned about closing costs, most lenders are able to offer no cost options.

Home equity loans, cash out refinances and second mortgages can also be used to make a modification such as adding a room for a loved one, installing or purchasing solar panels so they can lower their energy bills, allow for some extra liquidity for starting a business. In order to determine if any of these ideas are best for you, know your options, your short term, as well as your longer term goals. This will allow you to make the best decision possible for you before you commit to any program.

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