Cash Out Refi
Cash Out Refi - A cash-out refinance is like a regular refinance except that the total amount of the loan is greater than your current mortgage balance, and you walk away from the closing table with the difference in the form of a check made out to you, which could be used to pay off high-interest credit card debt, auto loans, or for anything you like.
The upsides to a cash out refi are cash-in-hand and that the interest on the mortgage is tax-deductible, specifically that the cash-out interest portion of the refinance is deductible, whereas credit card debt is not.
The downsides are that the cash you take comes directly from your equity, and if your financed amount exceeds 80% of your home's appraised value you'll wind-up paying PMI.
If the Cash-out Loan Amount is less than 70% of the homes value (70% LTV) most banks will give you a better interest rate. If the LTV exceeds 70% you will usually have a higher interest rate, or pay up front in the form of points, or additional origination costs.
There are loan programs were you can accept a slitghtly higher rate in order to avoid having to pay PMI.
Cashing Out the equity in your home to pay off high interest credit cards could potentially save you hundreds of dollars each month.
If you do need cash for a project or something of that nature, then using your home's equity is a great idea. If you were to borrow against a 401k program, you would more than likely have to pay some sort of penalty. With the cash-out refi, there are more tax advantages to acquiring the money needed. In some cases, you may even be able to lower your interest rate at the same time as taking the cash out.
Remember that there is a three day right of recission with any refinance. So you will not be walking away from the table with a check made out to you. It is in your best interest to plan ahead for this. If you need the cash by a certain date, be sure to apply with you mortgage professional as soon as you know that the money is needed.
If you take out a Cash-Out Refinance mortgage to pay off credit card debts, keep in mind that credit card debts are non-secure debts, you cannot lose your home if you default on this type of debts. A mortgage is secured with your house. If you default on mortgage payments, you could lose your home.
If you are doing a cash-out refinance on an investment property there is no 3 day right of recission and you can usually walk away from the closing with a check in hand (or at least have the check by the next business day).
Cash out refis are very popular and for good reason. The fact of the matter is that there almost no less expensive way to borrow a substantial sum of money than with the first mortgage on your principal residence. Funds that are obtained from a cash out refi are typically used for home improvements, to consolidate other debt, college expenses, vacations and just about anything in life that you might need cash for.
There are many diferent loan programs to refinance into.Do not be intimidated or overwhelmed by the many financing options availible to you today. Your mortgage broker will be able to help you make an educated decision on the loan program that is right for your refinance.
When getting the maximum cash out possible, cash out on the first and cash out on the second, you will need to adhere to strict loan to value (LTV) guidelines.
Cash out is typically used for debt consolidation which ultimately lowers your monthly obligations.
Cash Out Refinance loans are subject to higher Credit and Loan to Value restrictions than no-cash-out refinance loans.
Cash-Out Refi - "I was told I can get a Cash-Out on my refinacing with my mortgage. How does this work, and will I have higher payments?"
Refinancing with Cash Out is an option but if you are borrowing more than 70% of your home's value, you can expect a little bit higher of an interest rate than if you weren't refinancing with cash out.
A "cash-out" Refinance simply means you taking a loan out against your home, the interest rates are a lot lower than a personal loan and the term can be stretched out longer therefore reducing the monthly payment compared to other loans.
Many borrowers choose to take cash out of their properties when values are high to allow them to take profits from the appreciation of their real estate, without paying income taxes on the proceeds of the cash out refinance loan. This is a commonly used strategy amongst high net worth individuals.
Cash-out Refi - Cash-out refis, short for cash-out refinances, are very common types of refinances for consumers. A cash-out refinance is simply refinancing your home and using the equity in your home to get some extra cash back to you at closing. For example, lets say you have a home that is worth $200,000, you owe $120,000. This means you have $80,000 worth of equity in your home. Lets say that you want to get $20,000 cash back from refinancing to do some home remodeling. You would then refinance for roughly $140,000 (120k current loan balance + 20k desired cash out amount = 140k new loan amount) and you would receive $20,000 back from the new lender you refinance with after closing. While you could use all of the equity in your home, it is usually a good idea to try and stay at 80% LTV, loan to value, or below. Loan to value is the percentage of how much your home is worth divided by your loan amount (100,000 home value; 80,000 loan = 80% LTV).
There are many good reasons to get cash out. Many people will do this to pay off debts and improve their credit rating. Some people even cash out to take advantage of investment oppourtunities.
Cash Out Refinancing is one of the leading ways for borrowers to take profits from the increased value of real estate assets without recognizing a gain for tax purposes. If your home or other property has appreciated substantially over the past few years, cash out refinancing may be the most efficient means for you to separate cash from equity and take profits while the market remains high. Noted economists predict that housing prices may decline as much as 20% to 30% inflation adjusted over the next 5 to 10 years in the USA, so many borrowers are looking to cash out as much as they can from their properties to reallocate to another, more favorably performing asset class as a hedge against their real estate risk.
Many people in recent years have used a Home Equity Line of Credit(HELOC) for their immediate cash needs. A HELOC provides convenience in that you only pay interest on the amount borrowed currently. However, recent increases in the prime rate have dramatically increased the interest rates on HELOC's. Consult with your mortgage professional to see if a cash-out refinance to pay off a HELOC makes sense for you.
Tips for a better Mortgage Refi Experience - Decide what kind of a mortgage shopper you are, is service important to you or are you only interested in the best rate? Do you want both?
Ask questions, get answers
Dont sign anything you do not understand
Choose a Mortgage Broker who listens and works with you to accomplish what you had in mind
If you see or hear an ad that sounds too good to be true, it probably is[:)]
Be sure to ask for copies of the Good Faith Estimate before you agree to a deal. Granted this document is only an estimate, it should be very close to an accurate assessment of all fees and charges. If a broker tells you that they cannot provide information on a particular charge, begin to ask questions until you are satisfied. Most good brokers will provide a Good Faith Estimate (GFE) during the loan process, and come the day of closing you will find that you have to pay less than estimated.
Your mortgage professional will help you to choose the right type of refinancing for you. Be prepared to provide them with your reasoning for the refinance, as it will help them to better assess your situation. Are you looking only for a better rate or do you need cash out or debt consolidation?
Be sure to answer all of your mortgage brokers questions as accurately as possible. This will help your mortgage broker in determining which loan program may best fit your needs.
Before contacting your preferred mortgage professional, you may want to gather these documents before hand:
Most recent paystubs totalling 30 days
Most recent bank statements for checkings, savings, IRA, 401(k), etc. totalling 3 months
Last 2 years of W2's if salaried or wage earner. Last 2 years tax returns if self-employed
Any other documents to show income from social security, alimony, rental income, etc.
Homeowners insurance declaration page
Most recent mortgage statement(s)
Everything you will encounter in your mortgage experience you can find on the internet, if you are reading this, you have access to learn more than you can handle in regard to this transaction...Gather info, research that info, get more info from second source, research that info, repeat that process until you feel that you can make a well informed decision, if you don't think after that that you can make a good decision for yourself, seek legal advise...Just involving a lawyer will minimize the games and tactics that may otherwise be used...You'll never be good at anything you don't do often, but you can be as informed as possible...Just knowing where to find the answers and explanations can be money saving!...You don't always get what you pay for, well you do, but it's not always worth what you paid for it so when you take advise from the person that stands to make the most, be wary and research before making a decision...