Cash-Out Refinance

There are many different reasons and ways to refinance. Basically, refinance just refers to the act of taking your existing loan, and paying it off while you take out a new loan that suits you better. Some people refinance because they can lower their monthly payments by using a different kind of loan. Other do it to take advantage of accumulated equity in their homes, and others might do it in order to finally pay off an old loan and get free of monthly payments altogether.

A cash-out refinance is one that results in you having cash in your pocket, after everything is said and done and all of your mortgage refinance expenses are paid. Here’s an example of a typical cash-out:

Say you own a home worth $350,000, and each month you pay on the mortgage, which has a total outstanding balance of $100,000. To do a cash-out refinance, you would ask your mortgage company to lend you more than $100,000. And then you could retire the original loan by paying the whole thing off, and would be left with some extra money to spend on anything you want. For instance, if you borrowed $200,000, you could pay off the old debt and still have an extra $100,000.

Of course you would very likely have some fees to pay related to the refinancing, because normally lenders charge you to do a refinance. You might be able to negotiate to reduce those fees, but for the sake of our example, let’s say that the refinance process costs you $2,700. You can pay those expenses and still end up with $97,300 in your pocket.

People “cash-out” for lots of reasons. Maybe you need to raise some cash to pay for a wedding or a semester of college. You might want to add a room to your house, buy a car, or pay off some pesky credit cards. You can even do a cash-out to pay for a long overdue vacation, or to start a personal saving plan for retirement. The ways to spend the money are endless. But the idea is that if you can get a better deal on a different kind of mortgage loan or take advantage of the increased value of your property, you can make some changes and pay off your old mortgage. And you can even refinance to end up with extra money after all is said and done.

If you think a cash-out refinance might work for you, just talk to one of our senior mortgage advisor at Optionwide Home Loans, and ask us to fill you in on all the details. We will help you do the math to figure out where a cash-out refinance would leave you, once it is accomplish.