Tuesday, June 21, 2011

All About Cash-Out Mortgage Refinancing

If your mortgage is already a few years old and you have not been remiss in your amortization payments, then you can benefit from this refinancing facility because the balance of your principal will definitely be much lower now. To illustrate, let's say you want to remodel your property but you do not have the $40,000 needed to do it. If the value of your house is $200,000 while the outstanding balance on your existing mortgage is only $80,000, you can secure a cash-out mortgage refinancing for $120,000. Of this amount, the $80,000 will be used to settle your old account and the $40,000 will be given to you to use as you please. You can even change your mind about remodeling and use the amount instead to pay for your son's college fund or for your dream vacation. Still, you may want to invest that money instead on another property. Perhaps you would like to use a portion to repay or consolidate your other small debts.

As a general rule, the maximum amount that you can refinance is equal to the value of your home. If you wish to borrow more than that, you will need to avail the other mortgage loan products of your bank such as the 125% home equity loan, which can either be a one-time loan release or a line of credit (HELOC). As with other types of loan facilities, there are advantages and disadvantages with availing the cash-out mortgage refinancing. If you are considering this path vis-a-vis other options such as a home equity loan, your comparison should be based on the net effect on your monthly payments. Remember that if you obtain a home equity loan, you are getting a new loan with different terms such as different interest rate and shorter repayment. You will need to pay a separate installment for this new loan on top of the monthly amortization you are paying for your existing mortgage. If you choose the cash-out mortgage refinancing, your current mortgage will be replaced by a new mortgage under new terms. You will still pay only one monthly amortization although the amount may now be different.

Do think long and hard before deciding on the cash-out mortgage refinancing. Study and analyze this option; quantify its effects on your cash flow. If you finally decide to apply for cash-out mortgage refinancing, consider how you will use the money. It is a good idea to invest the proceeds to improve your home because you will be increasing its resale value if and when you decide to sell it later on. On the other hand, if you intend to use the money to settle your credit card debts, you may want to estimate how long it will take you to pay them off "as is" without the refinancing proceeds. Can you pay them off in 5 years time? How does that compare with the term of your new mortgage which could run 15, 20 or 30 years? All things considered, cash-out mortgage refinancing seems sensible enough if by doing so you can enjoy lower interest rates. Of course, the trade off is the longer term of your new mortgage. At any rate, you get to reduce your monthly amortizations if you decide on cash-out mortgage refinancing.

Kevin Benner is the owner of EZ Rate Quotes, LLC an online financial news and information company helping consumers with Financial professionals in the mortgage insurance and debt space. We specialize in localized content development of topics such as mortgage refinance rates in Irvine, CA.

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