There are several different reasons why homeowners may choose to refinance their mortgage, and several types of refinancing that meet these needs. Some are doing so to pay their home off earlier, while others may be refinancing to get a better rate, lower payments or another specific benefit.
At VIP Mortgage Inc., we’re proud to assist our clients with a variety of mortgage refinancing needs, including one type that’s useful in several different circumstances: The cash-out refinance. Let’s go over what a cash-out refinance is, some common reasons why homeowners utilize them, and whether this is the right kind of refinancing for you.
Any refinancing situation involves replacing your current mortgage with a new one, and in the case of the cash-out refinance, this new mortgage is for a larger amount than the original one was. This extra cash is paid directly to you, the borrower, at the time of closing – essentially, you’re refinancing for more than what you owe to allow yourself to cash out on some of your built-up equity.
As you may have guessed, you need to have equity built up to begin this process. Also keep in mind that you could end up owing more interest on future payments due to owing more, and there may be a limit to how much cash you can receive on a cash-out refinance.
Why do homeowners consider cash-out refinancing? Here are some common reasons:
Now, cash-out refinancing isn’t necessarily for everyone. If you’re just going to use the cash as a band-aid for debt, rolling it over from one format to another, we recommend other forms of improving your finances instead. Cash-out refinances should be done when the conditions are favorable and you’ll specifically benefit, such as a home improvement where you need funds now but will be improving your home value by making the upgrades.
For more on cash-out refinancing, or to learn about any of our mortgage rates or other services, speak to the staff at VIP Mortgage Inc. today.