Find Out If Refinancing for Cash Back Is Right for You!
How to Maximize Home Refinancing with Cash Out Loans
The cash out refinance of mortgages has made a major comeback in the last three years. From April to June 2015, cash out refinances were 1/3 of all conventional refis, as mortgage loan rates dropped to record lows while homes appreciated in value.
Those quarterly results were the biggest one-quarter percentage for cash out mortgages since 2010!
If you are in need of cash for major expenses and are not sure where to find it, consider a cash out refinance of your existing mortgage. Let's break down what we are talking about and then how to maximize your home refinancing with cash out:
The Definition of a Refinance Mortgage
This is simply the refinancing of your existing mortgage loan. This means that you have an existing loan for your house, and you decide to replace the mortgage with another one.
Refinance loans are very similar to a regular mortgage, but it is a simpler and more streamlined process. After all, the home is already in your name and no real estate is being conveyed or being sold to another party. The simpler processes involved mean that many home refinances can be completed in just 20 to 30 days. When home refinancing for cash back, you will increase your home balance and you will receive the cash at settlement in a check or bank wire.
Ways to Use Your Cash Out Refinance
Millions of homeowners use their refinance for many reasons. Let's take a look at the most popular ways:
Money to Pay for Home Improvements - Home improvement projects can be expensive, and taking cash out of your home can be a wise choice, depending upon what you intend to do. For most Americans, there will be borrowed money with a lower interest rate than a home loan.
A kitchen remodel, for example, can cost $40,000 or more, while adding an extension on your home can run $100,000.
If you opt for a cash out refinance to do your home improvement, you should make sure you choose improvements that will give you the most money back when you sell. Many experts advise starting by upgrading the kitchen and bathrooms.
Fund or Plan for Retirement - Done wisely, refinancing to build your retirement savings can make sense. Real estate is able to build wealth faster than most other investments because you are starting with a much larger figure.
For instance, a 10% gain on a $500,000 house creates $50,000 of wealth. A 10% gain on $50,000 stock creates just $5000.
You also may be able to invest the money from your cash out loans into a tax advantaged, interest compounding account, thereby increasing your return.
Diversify Your Portfolio - Doing a cash out refinance can be a wise way to diversity and protect yourself from a real estate market crash.
Think about it: One's personal home is often his or her largest asset. As home prices go up, equity increases. So each month, the value of your home rises, and so does the amount you have invested in real estate.
However, home equity is just money on mortgage statement. It is not 'real' until it is cash. It cannot be used and it cannot be spent when it is still part of the home.
And if market values crash, you can lose many thousands in equity. That is exactly what happened to homeowners in Nevada, California, Florida and other states in 2007 and 2008.
With that in mind, it can be smart to pull that money out in a cash out refi. Just make sure that you are investing that money wisely, meaning that it is producing at least as much income as the loan is costing you annually.
Pay Off Debt - Cash out refinances are very popular to pay down credit card debt, especially if you are near retirement. Most credit cards have interest rates of up to 18%. Mortgage debt usually can be had from 3% to 5%. That is a huge amount of saved interest.
A popular way to maximize home refinancing with cash out is to pay all credit cards to a zero balance. Then, use that monthly savings to reduce the balance you own on your home.
Buy Out Ex-Spouse - When people get divorced, what to do with jointly owned real estate is always contentious. If your home is in both of your names, there only is one way to get the other party's name off title: Do a new mortgage. Another option is to do a cash out refinance to buy out the ex-spouse.
The Bottom Line
As you are considering a cash out refinance, make sure you do the following:
Know how much you owe on your current mortgage, so you will know how much you can save with current interest rates. Also know what the pay off will be to your lender and any fees and closing costs.
Check your FICO score. If your score is higher than when you took out your mortgage, you really could save money.
No new debt. Lock in your qualifications by not taking on new credit card debt.
Shop around for three to five mortgage refi lenders. Research proves that homeowners get the best savings by shopping at least three mortgage lenders.
Do a refi to get rid of mortgage insurance. If you had less than 20% down on your home, you have to pay mortgage insurance. If your home has appreciated enough, you probably can do away with that insurance payment.
Doing a cash out refinance can be a great move if you are going to do responsible things with the money and you have self-discipline. Consider speaking to an experienced mortgage loan professional to learn more about your options. Article was written by Jenifer Stone
With rates this low you must do a mortgage check-up with a lender to see if you have the ability to reduce interest and ultimately your housing expenses. Many times people are able to complete a home refinance can get cash back at the same time. In some cases, homeowners are receiving thousands of dollars in their hands with the payments not rising. With record low interest rates, this is possible.