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Home Mortgage Refinancing - Things to Consider When Looking
to Get Cash Out on a Refinance
When you refinance your home mortgage, lenders often tempt you
with the option of cashing out part of your home's equity. Cash
at a comparably low interest rate may seem like a good option,
but make sure you will financially benefit from it first.
Raising Your Home's Value
Only some home improvements raise the value of your home.
Bathroom and kitchen upgrades are one example of this. However,
with most remodel jobs, you will not see a financial gain. If you
are using your home's equity to fund projects, make sure that
your investment will pay off.
Saving On Interest Payments
Paying off credit cards with your home's equity will save you
money in two ways. First of all, you will save on interest
payments. Secondly, the interest you pay on your mortgage is tax
deductible, unlike credit card interest.
PMI Penalty
Private mortgage insurance kicks in if you borrow more than
80% of your home's value. These extra payments can add up to
several hundred dollars a year, so be careful how much you
borrow. Other lines of credit may be more cost efficient when you
factor in the cost of PMI on your mortgage.
The Length Of The Loan
While it may see smart to take out equity at a low interest
rate with your mortgage, it may be cheaper to cash out through a
home equity loan. Home equity loans allow you to deduct interest
payments from your taxes, but they require a shorter repayment
period.
Interest rates on a home equity loan are higher, so you will
need to compare the costs between refinancing and a home equity
loan. Generally, if your mortgage is long-term, a home equity
loan is a better deal.
Your Financial Situation
To decide whether to cash out the equity of your home, you
have to make decisions around what is best for your financial
situation. There are no hard rules for this type of decision.
For example, purchasing a car with your home's equity may be a
wise investment if you need a car and would struggle with a car
payment. In the end, financial decisions are about making
trade-offs.
To view our recommended sources for refinance mortgage loans
online, visit this page: Recommended Refi
Mortgage Lenders Online.
Carrie Reeder is the owner ABC Loan Guide, an
informational website about various types of loans.
MORE RESOURCES updated Thu. June / 08 / 2023
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While trying to find the lowest rates, many homeowners fail
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