Mortgage 101: The Benefits And Drawbacks Of Cash-out Refinancing

Did you know that your home builds equity as the years pass by? A lot of homeowners nowadays don’t know about this, but many are also enjoying the benefit of it. There are many reasons why you, as a homeowner, need to tap your home equity. Some use the money they get out of their home equity to fund major home renovations and improvement to increase the market value of their property.

Other people use it to fund their son or daughters’ schooling expenses while some use it for their travel and leisure goals. Whatever the reason, you can do a lot of things when it comes to tapping your home equity.

One of the ways where you can tap your home equity is through cash out refinance in texas. But what is cash-out refinancing? And what are the benefits and drawbacks of using it?

What is Cash-out Refinancing?

Cash-out refinancing is the process of using your home equity to pay up your existing mortgage and replaces it with a new one while also getting a large amount of cash. Let’s say your current home equity is valued to $200,000, and your mortgage balance is $100,000; it means your home has built an equity value of $100,000. If you plan to get $50,000 out of your home equity, you can apply for a cash out refinance in texas for a new mortgage loan amounting to $150,000. The new mortgage will pay out the mortgage balance amounting to $100,000, and the $50,000 will be given to you as cash.

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Mortgage, Hypothecary Credit, Loan, Interest Rate

The Benefits of Cash-out Refinancing

Cash Out From Home Equity. As mentioned earlier, tapping your home equity means you get a large amount of cash out of it depending on your current home equity value. You can use the money you get for whatever reason such as funding your home improvement projects, paying off your debts, or for your travel and leisure expenses.

Lower Monthly Payments. The new mortgage created using Cash-out Refinancing offers lower monthly dues and interest rates compared to the original. It means that you aside from getting money out of your home equity, you also save money from your monthly dues.

Avoid Foreclosure. As mentioned earlier, by using cash-out refinancing, you can pay off your first mortgage loan. It means that you can avoid getting your house getting foreclosed, especially if you are having trouble in your financials. And you won’t have to worry about your monthly dues since it will become smaller, thanks to cash-out refinancing.

The Drawbacks of Cash-out Refinancing

Additional Cost. Similar to the process of applying for a mortgage loan, you need to pay closing cost, credit report fees, home appraisal fees, loan origination fee, and mortgage insurance.

New Application Process. Applying for a cash-out refinancing mortgage loan means you have to do it again from the start. Even if you have an existing mortgage loan, you still need to provide your lenders with credentials such as an excellent credit score and a stable source of income.