| In challenging economic times, it can be difficult for | | | | - Pay a child's college tuition |
| many consumers to secure a loan. But if you have a | | | | - Invest in a financial opportunity |
| home with some equity built up, the equity can help you | | | | - Start a new business |
| get the cash you need for any reason- home | | | | - Purchase a second home or rental property |
| improvements, starting a new business, paying | | | | - Buy a new car or pay for a vacation |
| unexpected bills. For many homeowners, refinancing a | | | | - Pay off medical bills or credit card debt |
| mortgage in exchange for cash is an appealing | | | | When to Refinance Your Home |
| alternative to seeking a new loan. | | | | If you're thinking about refinancing your home to get |
| What is Cash Out Refinancing? | | | | cash, there are a number of factors to consider. |
| Cash out refinancing means replacing the current | | | | Sometimes interest rates, mortgage closing costs, and |
| mortgage on your home with a new mortgage for a | | | | the state of the economy can make a home equity |
| larger amount. The difference between the old and | | | | loan (also known as a second mortgage) a better idea |
| new mortgages is considered "cash out" - money that | | | | than refinancing your mortgage. |
| you can use for whatever purposes you wish. A | | | | If you can switch out your present mortgage for a |
| mortgage is a secured loan, so this money doesn't | | | | new mortgage at a lower interest rate, and avoid |
| come from thin air: it comes from the equity you've | | | | paying substantial closing fees, then refinancing your |
| built up in your home. | | | | home would probably be the least expensive loan you'll |
| Take the following example: A family owns a $100,000 | | | | be able to find. But if interest rates on a new |
| home, with $75,000 in equity and a $25,000 mortgage. | | | | mortgage will be markedly higher than what you're |
| They'd like to refinance their home to pay for kitchen | | | | currently paying, or if closing costs on your present |
| renovations, so they take out a new mortgage for | | | | mortgage will cost you thousands of dollars, refinancing |
| $55,000. The new mortgage lender pays off the | | | | may not be your best option. |
| previous mortgage ($25,000) and $30,000 is | | | | The viability of a new mortgage also hinges on the |
| considered "cash out" that can be spent on the | | | | amount of money you want to receive. If you only |
| renovations, leaving the family with $45,000 remaining | | | | need $10,000 for a new car or $5,000 for a family |
| equity in their home. | | | | vacation, refinancing your mortgage is probably not the |
| Because a mortgage is a secured loan, it's possible for | | | | most economical way to borrow it, since you could |
| even people with less-than-perfect credit to refinance | | | | spend half that much in closing fees. Even if interest |
| a home, although falling real estate prices can make | | | | rates are lower now than they were when you took |
| this opportunity less viable for homeowners whose | | | | out your mortgage, it might not be worth that sum in |
| property values might suddenly be the same as (or | | | | fees. |
| less than) a current mortgage. If there's little to no | | | | On the other hand, a larger loan might cost you more if |
| equity in your home, then it's impossible to pull cash out | | | | you borrowed it as a secured home equity loan, so |
| by refinancing. | | | | refinancing your mortgage is often a smart option if |
| Choosing to Refinance Your Mortgage to Get Cash | | | | you need to fund major home repairs or purchase a |
| Refinancing your home to get cash can be an | | | | second property. It's a good idea to contact several |
| effective way to make use of your mortgage instead | | | | financial institutions and ask them for a no-commitment |
| of securing a new loan. Cash out refinancing might | | | | quote on both options to help you determine which is |
| come in handy if you'd like to: | | | | best for your circumstances and in the present |
| - Finance home repairs or renovations | | | | economy. |