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Cash Out Refinance

FHA allows a cash out refinance up to 85% of the appraised value.

Conventional now allows cash out refinancing up to 85% of the appraised value with mortgage insurance or 80% without mortgage insurance.

In addition Home Equity Line of Credits and second mortgages allow cash out up to 100% of the appraised Value

 

When does a cash out refinance make sense?

 

What is a Cash Out Refinance?

A cash out refinance is when you refinance your mortgage for more than you currently owe, taking the difference in cash and slowly paying it back over time.

Example: Pretend you have a  $200,000 mortgage on a house worth $400,000. Also pretend that you want $40,000 in cash to purchase your most recent mid life crisis. You can refinance into a new mortgage for $240,000, and walk away with an extra $40,000.

One thing to be careful of is to always cash out refinance into a lower interest rate. It is not good practical sense to use a cash out refinance to refinance your whole mortgage into a higher rate loan. If interest rates are higher it would make more sense to

It doesn’t make sense to cash out refinance a higher amount at a higher rate. If your current mortgage is at a lower interest rate than you could get now by refinancing, it’s probably better to get a home equity loan. Or, if you’re 20 years into a 30-year mortgage, you’re paying more principal than interest with each mortgage payment, says Nancy Flint-Budde, independent Certified Financial Planner in Salem, N.Y. “If you are that far into a loan, then it might not make sense to refinance, even if your current rate is slightly higher.”

 

Should I do a cash out refinance?

It really depends on what you would do with the money. Taking on more debt is always something to be cautious of.

Before you do the financial calculations, it’s a good idea to take a outside look at what you plan to spend the money on.

A list of some cash out items that might make sense include:

  • a home addition that will increase the home value,
  • medical bills
  • start a business.
  • gambling

 What about Debt Consolidation cash out refinance

Do you have high credit card balances, Maybe you should spend less. If you are thinking about taking cash out to lower your monthly obligations by paying off your high interest credit cards think again. Beware, you will be lemgthening the time you will be paying off those credit cards to 30 years. 30 years of interest is alot of money. It would be better to quit spending.