If you have equity in your home, a cash out refinance can be used to pay off your existing mortgage and help you get more cash at closing.
A cash out refinance is not the same thing as a home equity loan. A home equity loan is a second mortgage that uses your home’s value as collateral for the loan amount. A cash out refinance is an alternative to refinancing for the purpose of obtaining more money from the sale of your home.
Whether or not you should take out a cash out refinance depends on several factors: how much money you can save by refinancing, how much interest is being charged on the current mortgage and whether or not there are other financial obligations on which it may be better to use that money instead (such as paying off credit card debt).
A cash out refinance is a good option if you’re looking for more money than what you can get from a traditional refinancing. It’s also a good idea if your current interest rate is higher than the average market rate or if your home’s value has increased significantly since purchasing it.
As with any major financial decision, it’s important to weigh the pros and cons of a cash out refinance before making the move. When deciding whether or not a cash out refinance is right for you, consider the cash out rates and these points:
- If you plan to stay in your home for only a few more years, a cash out refinance isn’t worth it. The fees and higher interest rate will likely cost you more than any savings from the cash out option in the long run.
- The amount of money you can get from a traditional refinancing may be enough to help pay off credit card debt or consolidate other loans.
- If you have a lot of equity in your home, it may make sense to get out some cash while rates are low.