Are you trying to decide whether you should do a cash-out refinancing on your home mortgage? If so, you aren’t alone. 13.6 million people in America chose to re-finance their mortgage in one form or another in the year 2020!
The decision to do a cash-out refinance on your home is an important decision for you and your family. It’s also one that has important consequences now and in the future. Read on to learn about the pros and cons of cash-out refinancing!
Pro: Leverage Your Home Equity
One of the advantages of cash-out refinancing is that it allows you to leverage the equity in your home. For example, let’s say you bought your home in 2015 for $250,000 with no money down. Today, you had your home appraised and it is worth $300,000.
Your equity in the home is the difference between the value of the home and the amount left on your mortgage. You may be wondering, ‘What is cash-out refinancing?’
In short, it’s a financial arrangement where your current mortgage is replaced for a mortgage at a higher amount. The difference between the two mortgages is “cashed out” so that you can use it to pay off debt or perform home improvements.
Pro: Take Advantage of Low-Interest Rates
You can take advantage of low interests that may be advantageous to you in the short and long term. To make the best decision for your situation, you must decide what the difference in mortgage payments is before and after the refinance.
How does your loan’s interest rate compare to the rate you qualify for now? Lowering your interest rate can save you tens of thousands of dollars over the lifetime of your loan. Just don’t decide without weighing your options first.
Con: Extend The Time on Your Loan
It’s nice to have money in your hands after a cash-out refinance but it comes at a cost. Unless you are refinancing your loan at a significantly shorter term, you will likely have to pay for your home longer.
For example, let’s say you had a 30-year mortgage and you paid on it for five years. At the end of Year 5, you do a cash-out refinance for a new 30-year term.
You will then be paying on your home for 35 total years instead of the original 30 years!
Con: May Not Make Sense For You Financially
Reviewing the pros and cons of cash-out refinancing may make you realize that the process does not make sense for you. This can be a result of many factors including a higher mortgage payment or better ways to get cash at a cheaper price.
Your research may reveal that you are better off applying for a personal or business loan and keeping your current mortgage in place!
Deciding Whether to Move Forward With Cash-Out Refinancing
Cash-out refinancing is one of many different options that exist for homeowners across the United States. To make the best decision, you’ll need to speak with your family and your mortgage advisor to learn the best course of action for you.
At Solidify Mortgage Advisors, we are a team of real estate professionals dedicated to helping you make the best choice for the needs of your family. We will work closely with you to give you the information to make an informed decision.
Contact us today to learn more about our services and how we can help you with your next mortgage!