If you can put up with sacrificing some of the equity in your home for gaining some liquidity, a cash out mortgage refinance is a good option for you to consider.

Just what exactly is a cash out mortgage refinance?
Basically, a cash out refinance is refinancing your current mortgage for more money than you owe now and pocketing the difference between the two. If you have owned your home for some time, odds are that the principal is much lower now than it was when you initially purchased your home. The build up of equity that has accumulated since first purchasing will be large enough to cover your current mortgage and then some... which you will be walking away with.
If for example you owe $100,000 on a $200,000 home and need $25,000 in a financial emergency. You could refinance your mortgage to $125,000 and pocket the difference of $25,000. This money can be used for anything, a home repair, home improvement, buying another home, tuition fees, paying off another debt, or anything else you can think of. Also, with mortgage rates at an all time low, you most likely will be able to get a better finance rate on your mortgage as well, saving you even more money every month.

If the interest rate offered to you is a good number higher than your current rate this might not be a good financial choice. A HELOC (Home equity line of credit) may be a better choice.
Most of the time, a home owner can refinance up to 100% of their property's current market value. Most of the time though, if you refinance your mortgage for more than 80% of its value, you typically will have to pay a private mortgage insurance fee, or they will up the interest rate even higher. This situation is when a HELOC loan may be a better option

A cash out refinance vs. a home equity loan
Sometimes a homeowner can be confused by these two types of loans. They are however, very different. A cash out refinance is completely replacing your mortgage, while a HELOC is a separate loan entirely, on top of any existing loans. Basically a HELOC is a separate loan while a cash out refinance is replacing a loan with one that has better terms, rates, or conditions.

Usually a home mortgage refinance only will be beneficial if the rates have significantly dropped since you got your home. With rates currently at an all time low, this is a great time to consider a refinance. If you need short term cash though and a refinance is not a wise decision, than look into a HELOC.

-M Petrone


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