Is Cash-Out Refinancing a Good Idea?

Is Cash Out Refinancing a Good Idea 150x150For most homeowners, the sluggish economy may not be gaining the necessary momentum quickly enough to make managing a budget any easier. Naturally, they are looking at their home as not just a roof over their heads, but as a source of much needed cash in the form of equity to tap into, to relieve all sorts of financial needs or opportunities that remain beyond reach. Many are looking at the possibility of accessing this cash resource by investigating the option of cash-out refinancing programs.

Utilizing Home Equity

This option allows a borrower to refinance existing mortgages to ‘cash out’ some or most of the equity value in the home. In essence, the principle is to refinance the home for more than its present value and pocketing the surplus cash at closing. While the funds can be used for almost any purpose, the best strategic move would be to use these funds for either home improvements or debt consolidation.

Check into the Most Favorable Loan Programs

Examine this brief example of how a cash-out refinancing program would work. If the present home has a market value of $120,000, and the current balance on the existing mortgage is $70,000, the procedure would allow a homeowner to refinance for $100,000, eliminate the existing loan obligation of $70,000, and retain a surplus of $30,000 in equity. The process is of course dependent on how much is owed on the original loan, what the prevailing market value of the home is, and the specific mortgage loan types a refinance lender is willing to offer. There are many refinancing plans available, with loan amounts ranging from 80% to 125% of the home’s present value.

The advantages to this plan are based on a homeowner owing less than the home is worth, combined with being able to refinance at a much lower interest rate than the existing loan, adding more savings to the budget. In addition, gaining access to home equity funds will allow debt consolidation and tax benefits by paying off obligations with non tax- deductible interest.

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