What is a cash-out refinance?
In simple terms, a cash-out refinance replaces your current mortgage with another loan that:
- Pays off your current mortgage balance
- Uses your home equity to provide additional funds for other purposes
- Your interest rate and monthly principal and interest (P&I) payments remain the same for an initial period of 5, 7, or 10 years, then adjust annually.
- Loans available in a variety of longer terms.
- Includes an interest rate cap that sets a limit on how high your interest rate can go.
- Typically ARMs have a lower initial interest rate than on a fixed-rate mortgage.
- The interest rate cap limits the maximum amount your P&I payment may increase at each interest rate adjustment and over the life of the loan.
- May provide flexibility if you expect future income growth or if you plan to move or refinance within a few years.
- Monthly principal and interest payments may increase when the interest rate adjusts.
- Your monthly principal and interest payments may change every year after the initial fixed period is over.
To help you determine whether a cash-out refinance can help you with your long-term financial goals, contact your home mortgage consultant.