Cash-Out Mortgage Refinancing
Your house is a potentially large source of ready money if you
are willing to sacrifice some of your equity in return for
liquidity. Cash-out mortgage refinancing is one way to access
this cash.
What is cash-out mortgage refinancing?
Cash-out refinancing involves refinancing your mortgage for more
than you currently owe and pocketing the difference. If you have
been paying down your mortgage for some time, then the principal
on your mortgage is likely to be substantially lower than what
it was when you first took out your mortgage. That build-up of
equity will allow you to take out a loan that covers what you
currently owe -- and then some.
For example, say you owe $90,000 on a $180,000 house and want
$30,000 to add a family room. You could refinance your mortgage
for $120,000, and the bank will then hand over a check for the
difference of $30,000.
You can take the difference and use it for home renovations,
second-property purchases, tuition, debt repayment or anything
else that needs a significant amount of cash. What's more, you
may be able to get a more favorable interest rate for your
refinanced mortgage.
However, if the interest rate offered for your refinanced
mortgage is higher than your current rate, this probably isn't a
sensible choice. A home equity loan or line of credit (HELOC)
might be a better idea.
Typically, homeowners are allowed to refinance up to 100 percent
of their property's value. However, if you borrow more than 80
percent of your home's value, you may have to pay private
mortgage insurance, or pay a higher interest rate.
To learn more about cash-out refinancing, visit http://www.lendingtree.com/cec/yourhom
e/yourmortgage/cash-out-mortgage-refinancing.asp