Approximately 60% of homeowners have mortgages on their homes. While some might be close to paying them off, others might have almost 30 years left. If you have a mortgage but need some cash, did you know that you might be able to borrow money from the equity in your home? If you are interested in this, you will need to inquire about refinancing with a cash-out option. Here are several things to understand if you are considering this option.
Understand the Refinancing Process
Refinancing your home loan is a process that requires getting a new loan to pay off your old one. When you do this, you eliminate your original mortgage by replacing it with a new one. Lenders require an application process when refinancing, and this process involves several steps.
First, you must fill out the lender's application. The lender will evaluate the information you provide and will check your credit. If you meet the requirements, the lender may approve the loan for you. After this, the lender will order an appraisal to find out your home's true value today.
What Lenders Look for When Offering a Cash-Out Option
If you want to get cash from refinancing your home, your lender will take the procedure a step further. Lenders will only issue some money when a borrower has enough equity in the house, so your lender will calculate this amount. Your lender may have rules about the percentage of equity you must have, and this percentage may affect your ability to get cash from the deal.
Lenders sometimes only issue cash up to 80% of a home's value. If you owe 60% of the home's value on the loan, you could get an additional 20% cash through the cash-out refinance.
The Effects of Refinancing with a Cash-Out Option
Finally, you should understand the two main effects of a cash-out refinance. The first effect is the increase in your payment amount. Even if you get a lower interest rate when refinancing, you will have a higher mortgage payment because you owe more money on the loan. The second effect is that you will have less equity in the home because you took cash from the equity.
Getting cash out of your home's equity is an ideal option if you need money for a good reason. If you have questions about refinancing, talk to a company that offers mortgage refinancing services like TotalChoice Mortgage.