If you have a house and a mortgage, then you have probably watched the interest rates to see if there's a possibility that you can get a better rate for your mortgage. If a better rate does show up, you may want to consider getting a refinance for your mortgage so that you are dealing with a lower interest rate. If you do decide to go with a refinance, then you may want to think about using a cash-out refinance. But what is a cash out refinance?
With typical cash out refinancing, if you have $80,000 left on your mortgage, you would refinance for that amount. The refinance would basically take your old mortgage, pay it off, and then give you a new one at the lower interest rate. That will mean that you are going to have lower monthly payments because you don't have as much interest, and you may be able to pay off your mortgage faster. With a cash-out refinance, instead of getting just the amount you have left on your mortgage, that $80,000, you are going to ask for money on top of the refinance and you will get that amount of money right off the top. So, if you want to refinance your $80,000 mortgage, but you want to get another $25,000 in cash, you would ask for $105,000.
Getting a Cash Out Refinance
If you want to have a cash-out refinance, there are some things that you are going to have to do. You are going to have to make sure that you have at least 20% equity in your house. You earn equity as you pay down your mortgage. If you have paid down 20% of your mortgage, then you have 20% equity in your house. Not only are you going to have to have that amount of equity, you are going to have to prove that you can meet the additional payments. Even though you are refinancing, which would generally cause your payments to go down, your payments may actually go up some, depending on how long the term of the loan is and how much money you want to take off the top, so the bank may want to have additional proof of income.
If you are thinking about refinancing because the interest rates are better than when you originally got your mortgage, you may want to consider getting a cash-out refinance.