Are you considering a cash-out refinance? If so this information might help you decide if it is the right option for you.
Traditional Refinance:
A traditional refinance replaces your existing mortgage with a new mortgage which would typically offer better terms, such as number of years/months, monthly payment amount, or interest rate.
Cash-Out Refinance:
A cash-out refinance replaces your existing mortgage with a new mortgage loan, but with an amount higher than what you owe on your house. The difference goes to you in cash at closing. You must have equity built up in your house for a cash-out refinance.
Advantages:
A cash-out refinance allows you to immediately convert your home equity into cash that is paid to you at closing. That money is yours to use as you see fit. It is commonly used for home improvements, remodeling, or paying off high-interest debt to obtain a better financial situation. Cash-out amounts are generally limited to 80-90% of your home’s equity.
Dis-advantages:
Compared to a traditional refinance, the cash-out option usually comes with a slightly higher interest rate, but that will largely depend on your personal credit situation. Also, remember that closing costs are typically 2-5% of the loan, so make sure taking cash-out makes sense for your situation. Using that cash-out for a new car, or a luxury vacation, for example, will offer little return on investment. Paying off high-interest credit cards, only to max out credit card limits again, can put you in a worse financial situation, so make sure you use the cash-out money wisely.
A cash-out refinance is a great option for many Boise homeowners, but it’s not the best choice for everyone. If you have questions or want to talk about these and other refinance options please give Captial Mortgage a call today, or contact us using the form on this page.