Homeowners who are in need of money may want to know how to take advantage of the equity in their homes. Equity is the difference between the amount of money owed on the property and what the property is worth. One way to obtain cash from the equity in a property is with a cashout refinance. What is a cashout refinance?
A cash-out refinance is a mortgage refinance for the current amount owed on the property plus some of the equity. After closing costs for the refinance and paying the existing mortgage and liens on the property, the homeowner receives money from the refinanced equity.
According to Freddie Mac, a cash-out mortgage can be used for any purpose. Some common uses for a cash-out mortgage refinance are debt consolidation, home improvements, and buying out a co-owner of the property. A cashout refinance loan is often ideal for debt consolidation since a mortgage usually has lower interest than other loans.
Though a cash-out refinance is often used for a person’s home, this type of mortgage can be used with second homes and investment properties as well. The investment properties that are eligible for a cashout mortgage are one to four units. The refinanced home can also be a condo or manufactured home.
Since the closing costs and financing costs for the cashout refinance mortgage can be rolled into the refinance amount, the homeowner can take advantage of the equity in the home without having to pay costs. This makes this type of mortgage ideal for homeowners who do not have money to spare for costs, have equity, and need money.
A cash out mortgage can also reduce the homeowner’s mortgage rate and monthly payment. If the homeowner’s current mortgage rate is higher than current mortgage rates, a refinance may give the homeowner a lower rate and reduce their monthly payments. Therefore, a homeowner may want to consider a cash out refinance instead of a home equity loan which would add to the monthly expenses of the homeowner.
The cash out refinance can be a fifteen, twenty, or thirty year fixed rate mortgage. The refinance can also be for a five or seven year balloon depending on the refinance mortgage product. A homeowner may want to discuss the benefits of a cash out refinance mortgage with a lender to determine if this type of mortgage would benefit them compared to other loans.