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Cash Out Refinance At Large

If you are in a position to get a mortgage refinance, you may have heard a number of mortgage refinancing terms that you don't fully understand.  One of these is "Cash out Refinance."  A cash-out refinance is one way to get cash from the equity you have in your home.  In other words, when you do a mortgage refinance, you borrow more than the amount of your current mortgage and take the difference in cash.  The money can be used for whatever the homeowner desires. Even if you need to get a bad credit mortgage refinance, you may be able to get cash out as well.


There are both advantages and disadvantages to a cash-out refinance, but let's look at the requirements before we explore a few of those.  In order to get this type of mortgage, you must know about how much equity you have in your home.  Equity is the difference between the market value of your home and the amount of your current mortgage loan.  For instance, if your home appraises for $200,000 and the current value of the mortgage is $120,000, then the equity in your home is $80,000.  This does not mean you can borrow the full amount of the equity; instead, your new loan can only be up to 80% of the value of the home.  In this case, the new loan could not total more than $160,000, so the amount of equity available to borrow against would be $40,000. 


One of the disadvantages to a cash-out refinance is that the interest rates will be slightly higher than for a new loan or a regular mortgage refinance.  However, you can still benefit if the new rate is lower than your current rate. 


Just like with most home loans and other types of mortgage refinancing, there are closing costs associated with a cash-out refinance.  These will include an appraisal fee and title work.  Be sure to figure these closing costs out early so you know if you are getting enough cash from your equity to cover the closing costs and still have what you needed the cash for in the first place. 


Be sure you are borrowing the money for a good reason.  If you need to make home improvements or pay off debt that is at a high interest rate, it can be very beneficial to get this type of mortgage.  However, if you just want to go on a vacation or by a new sports car, you may want to re-think things a bit.  Talk with a lender to find out the actual interest rates for this mortgage as well as closing costs before you make a decision.