Cash-Out Refinance

People often think that the only reason to refinance their mortgage is to reduce monthly mortgage payments but there are quite a few reasons why refinancing may be beneficial. One very popular reason for refinancing is to obtain cash by taking advantage of the equity in your home. A cash-out refinance is one of the easiest and smartest ways to accomplish this. At Fairway Independent Mortgage Company we offer great rates and terms on cash-out refinances to homeowners throughout California, Nevada, and Oregon.

Traditional refinancing involves replacing your current mortgage with a new one of the same amount. The new loan is often designed to save money through adjustments such as a lower interest rate or a shortened term. Those who choose a cash-out refinance will have a new loan that is larger than their original loan. You will receive the difference between the loan amount and your home’s value in cash when the loan is closed. Homeowners often take advantage of both lower interest rates and the ability to take cash out of their home with a cash-out refinance.

Home equity loans and Home equity lines of credit (HELOC) are a less popular alternative to cash-out refinancing. HELOCs are lines of credit secured by your home and are often used for more short term financing. A home equity loan is a separate loan on top of your existing mortgage. Typically, home equity loans will have a higher interest rate than cash-out refinance loans making them a less favorable option.

One of the biggest advantages of a cash-out refinance loan is the ability to lock in a low fixed interest rate. For homeowners with a high current interest rate, a cash-out refinance can be a great way to obtain a lower interest rate, while obtaining cash for various expenses.

Common uses for a cash-out refinance are home improvements, consolidating high-interest debts, paying a child’s college tuition, and other various investments. Some homeowners will use the money for thing such as vacations and new cars. It is recommended that borrowers stay away from these types of purchases as they offer little to no return on their investment. On the other hand, home improvements can help to increase the value of your home and high-interest debt consolidation can save you thousands of dollars in interest.

It is important to keep in mind that just like when closing your original mortgage, there are closing costs associated with a cash-out refinance. Closing costs tend to range from 3% to 6% so if you are refinancing a $100,000 loan, you can expect to pay $3,000 to $6,000 in closing costs. If closings costs are steep and your interest rate is a minimal improvement over your current rate, it may not make sense to refinance just yet.

At Fairway Independent Mortgage Company, we want to help ensure you are making a smart decision about refinancing your California home. We take the time to review closing costs, interest rate, and revised terms with each of our clients so that you have all of the information to make the best choice for your individual needs. If you have any questions about cash-out refinancing, do not hesitate to contact us today!