What is Cash Out Refinancing?

A cash-out refinance refers to a refinancing option whereby an existing home loan is replaced by a new one with a greater amount than what was owed on the old loan. This allows the client to obtain extra money that can be spent on home renovations, debt consolidation or to meet other expenses. Your property must have enough equity to utilize a cash-out refinance. Contrary to a cash-out refinance, a rate and term refinance simply will pay off an existing mortgage with no additional money to the borrower.

Cash-out refinancing

How does a cash out refinance work?

  • Allows the borrower to capitalize on the home’s equity and receive money for other needs.
  • Has a relatively higher interest rate because of the additional risk to the Lender.
  • Cash-out loan to values typically are maxed out at 80 percent of the home’s value.

 

Refinancing Mortgage Cash out Definition

The equity in the house is determined by the current value of the house minus the mortgage balance. With each mortgage payment you make, your home’s equity increases because your mortgage balance decreases. Homeowners can also build equity if the properties in the area increase in value. A cash-out refinance is a great way to access your home’s equity.

 

Cash out refinance pros and cons

There are some cons that relate to fees involved in a cash-out refinance, including mortgage points and closing costs. A cash-out refinance may attract a higher interest rate compared to a traditional mortgage because of extra risk to the Lender. Cash-out refinance loans have the same terms as a rate and term refinance, between 10 and 30 years. The pros to working with The Cain Mortgage Team are; we charge no origination fees or points unless the point is used to obtain a lower rate.

 

Cash Out Refinance vs Home Equity Loan

Home Equity Loans typically come with lower fees but the rate is higher and on a shorter term. Additionally, Home Equity Loans can have variable rates or even be interest only. There are positives and negatives associated with both of these features. We would recommend you contact a local Loan Officer to learn more. Additionally, a Home Equity Loan is a separate loan that is secured with your house. A Cash-out mortgage takes the place of your existing mortgage.

 

Cash-Out Refinance rates

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How Does a Cash-Out Refinance compare to a Home Equity Loan (HELOC)?

Home Equity Loans typically come with lower fees but the rate is higher and on a shorter term. Additionally, Home Equity Loans can have variable rates or even be interest only. There are positives and negatives associated with both of these features. We would recommend you contact a local Loan Officer to learn more. Additionally, a Home Equity Loan is a separate loan that is secured with your house. A Cash-out mortgage takes the place of your existing mortgage.

Both home equity loans and refinancing are great ways to obtain cash depending on what your property is currently worth.

HELOCs are ideal for homeowners who require access to a certain amount of money over time instead of getting the whole amount upfront.

For additional information or to have a conversation regarding which loan would be more beneficial for you, call The Cain Mortgage Team at 803 261 9267!

 

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