Refinancing your mortgage for more than you currently owe through cash-out refinancing allows you to pocket the difference. There are a few things you should keep in mind though when choosing this option.
Cash-Out Refinancing Has Its Costs
Cash out refinancing usually yields lower interest rates than home equity loans but unlike home equity loans when you do cash-out refinancing you are changing your existing loan, so there will be closing costs. Closing costs can be hundreds or even thousands of dollars that you may not have at your disposal.
Evaluate Your Spending
Since the cash you take out is wrapped into the total loan amount and isn't a separate entity you will be making payments on that twenty or thirty thousand dollars taken for the life of your loan. This means you should strongly evaluate how you will use the money. If the money is for a large project like a home remodel or a start up business then you may be comfortable with paying that back over the next thirty years. If it's for something like a car or a vacation the thought of paying on something like that for thirty years could push you more in the direction of a home equity loan with shorter repayment periods.
Look at what your total monthly payment will be and determine if it's really worth the time and money to get cash out. At the end of the day the choice is yours just make sure your choice is an informed one.
Go to http://www.refinancesmarts.com for more information on a Cash Out Mortgage Refinance.
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