What is it?
In simple terms, a cash-out refinance replaces your current mortgage with another loan that:
- Pays off your current mortgage balance.
- Uses the equity in your home to provide additional funds for other purposes.
When to consider
How do you know if a cash-out refinance is the right move? There's no hard-and-fast answer to that question, but you may want to consider refinancing if any of the following situations apply:
- Interest rates have dropped substantially since the last time you financed your home.
- You intend to stay in your home for several more years.
- You can shorten your loan term.
Important questions to think about
With a cash- out refinance, you need to weigh the benefit of how you’re going to use the money against the amount of time it will take to pay off the loan. Refinancing may give you a lower interest rate, but if you extend your loan term, you may pay more interest over the life of the loan. Here are some things to think about:
- How many years until the end of the term of your current loan?
- How long is the term of the new loan?
- Are interest rates lower than your current financing?
- How much cash do you need?
- What's the monthly payment amount?
- What's the effect on your taxes?
- What's the total cost of borrowing?
- What's your break-even point
To help you answer these questions and determine whether a cash-out refinance may help you with your long-term financial goals, contact your home mortgage consultant.