These days, cash-out refinancing is becoming increasingly popular among homeowners who want to not only save money on their monthly mortgage payment, but get a little extra cash in their pocket outright as well. Specifically, a cash-out refinance allows you to replace your existing home loan with a new home loan for a little bit more than you owe. The extra money can go straight in your pocket and be used for just about anything.
Not sure if a cash-out refinance is right for you? There are a few important questions to ask yourself that may help you decide.
How Much Equity Do You Have?
Start by looking at your most recent mortgage statement to calculate exactly how much equity you have in your home. A lot of lenders will require that you have at least 20% equity in your home in order to refinance, so if you still aren't quite to that point, you're probably not going to be able to do a cash-out refinance.
How Good Is Your Credit?
Be sure to consider your current credit score as well. If your credit is worse off now than it was when you originally took out your current mortgage, you will probably have a hard time getting approved for a new loan with better terms than what you had before. This isn't always the case, but it's definitely something to consider.
What's the Current Market Like?
Perhaps more than anything else, the current market must be kept in mind when deciding whether a cash-out refinance is a good option for you. Fortunately, mortgage interest rates are still pretty low, so you should probably be able to get a favorable rate and keep a decent amount of money in your pocket when all is said and done with a cash-out option.
What Will It Cost You Out-of-Pocket?
Keep in mind that all refinance loans require you to pay closing costs and other fees, so you'll want to make sure it's worth it for you to pay those out-of-pocket expenses to have the extra cash in your pocket immediately and the long-term savings.
These are just a few of the most important considerations to keep in mind when deciding whether or not a cash-out refinance is right for you. If you're still not sure or have additional questions, it's always a good idea to speak with a trusted financial advisor or other professional.