Midland Cash-Out Refinance

In the real estate industry, refinancing is the process of exchanging an existing mortgage for a new one that typically offers more favorable terms to the borrower. Refinancing a mortgage can help you save money by lowering your interest rate, extending the length of your loan term, eliminating or adding borrowers, and, in the case of a cash-out refinance, allowing you to borrow money against the equity in your home.

What Is a Cash-Out Refinance?

One type of mortgage refinancing is called a “cash-out refinance.” It allows the borrower to turn their home’s equity into cash. Your current mortgage balance is paid off by taking out a larger mortgage, and the excess is given to you as cash.

For many Midland homeowners, using the value of their home as collateral can be a quick and painless way to get the money they need quickly.

How Does Cash-Out Refinancing Work?

In the case of a conventional refinance, the borrower stands to gain a lower interest rate or lower monthly payments but receives no cash from the transaction. With a cash-out refinance, however, you receive the difference between your old and new mortgage in cash and use it as you see fit. 

Because there is less equity in your home after a cash-out refinance, the lender is taking on more risk. This means that you may have to pay more fees, interest, or both compared to a regular refinance.

Pros and Cons of a Cash-Out Refinance

Many people can benefit from a cash-out refinance. Mortgages have low-interest rates for any kind of loan. Because your home is used as collateral, lenders assume little risk and can afford to maintain low-interest rates. 

Check out the following cash-out refinancing pros and cons before making a final decision:

• PROS

1. Potentially lower interest rate

Though the interest rate on a cash-out refinance is typically higher than that on a purchase loan, it is still much lower than the interest rate on personal loans. They also have a more extended repayment period and possible tax advantages.

2. Pay off just one loan

Because you are refinancing, you will only have to worry about one monthly loan payment. Your only other option for borrowing against the equity in your home is a second mortgage.

3. Access to needed funds

With a cash-out refinance, you can typically borrow much more than you could with a personal loan or using credit cards. This makes it very useful with significant expenses, like a home renovation or college tuition.

4. Debt consolidation

To avoid paying thousands of dollars in interest charges, consider using the proceeds from a cash-out refinance to pay off high-interest credit cards.

• CONS

1. Face the risk of foreclosure

You risk losing your home if you default on your payments because it is the collateral for the mortgage.

2. New mortgage terms

The terms of your new mortgage will differ from those of your initial loan. Before you accept the new conditions, double-check your interest rate and fees and the total interest you’d pay over the life of the loan. 

3. Time-consuming process

Although you won’t have to go through the same hoops as a purchase loan, underwriting for a new mortgage can still take several weeks. Refinancing may not be the best option if you need the money immediately.

4. Higher closing costs 

Cash-out refinancing, like any other type of refinancing, requires you to pay closing costs that can average between 2% and 5% of the loan amount. This can significantly reduce the amount of money you receive at closing.

5. Private mortgage insurance

You will be required to pay for private mortgage insurance if the amount you borrow exceeds 80% of the value of your home. The annual cost of private mortgage insurance ranges from 0.55% to 2.25% of your loan balance. 

Is Cash-Out Refinancing a Good Idea?

A cash-out refinance may make sense if you can get a reasonable interest rate on the new loan, depending on what you intend to do with the money. 

You should refrain from trying to refinance your home to pay for trips or a new car because you’ll get little to no return on your investment. However, a cash-out refinance might be advantageous in the following circumstances:

• You plan to use your home’s equity to pay off more debt and lower monthly interest payments.

• You need money for a big purchase or investment but can only get a loan from somewhere else.

• The interest rates of alternative financing options exceed the interest rate available for cash-out refinancing.

A cash-out refinance can be an effective method for obtaining the funds necessary to accomplish a wide variety of objectives, including but not limited to eliminating debt and completing home improvement projects.

If you think a cash-out refinance is for you and are ready to start, check out what Capital Home Mortgage offers by contacting us at (432) 218-4828!