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There are some definite benefits to doing a
cash out refinance. Just make sure that overall
you are not going to be spending more money in
fees and interest doing a cash out refinance as
opposed to a home equity loan. When you do a
cash out refinance, you are refinancing your
entire loan. Let's say you owe $300,000 on your
home and you want to get $10,000 in cash out. If
in refinancing your rate will be the same or
higher, then you will be losing an extraordinary
amount of money in fees just to get a $10,000
loan. In a case like that, you would definitely
want to go with a home equity loan.
Home equity loans are better if:
1. You have a large home loan yet only need to
cash out of a small amount of equity 2. You need
to borrow up to 100% of the equity in your home
3. You want a revolving credit line 4. You want
a payoff sooner, or longer than the term of the
rest of your mortgage loan
On the other hand if you are:
1. Going to refinance anyway 2. Wanting to
borrow a large percentage of your home's equity
3. Refinancing for a much lower rate
Then, a cash out refinance loan may be best for
you. Of course, the best way to tell is to
actually sit down and do the math. These are
just guidelines; the real test is in the math.
You can consult a refinance calculator and a
home equity loan calculator and figure out which
one will save you the most money in the long
run. Compare the total amounts you will spend in
interest and fees. If you are planning on a cash
out refinance, make sure that you are
refinancing with a low enough rate to justify
the fees to refinance. Your loan specialist
should be able to help you figure out which one
is best for your needs.
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