Mortgage Refinance With Cash Back - Useful Ways to Take Advantage of Your Equity
Being able to have the cash to make ends meet, pay off debt or add some useful space to your home is the dream of many homeowners. But it doesn't have to be one that's out of reach when you refinance home mortgage with cash back.
Also called a cash-out refinance, this option can assist with making your borrowing costs lower and help you improve your cash flow.
Cash Back Considerations
This option will see you taking out a new mortgage that has a higher principal than your old mortgage does, and getting cash back on the balance. But some discipline is necessary. In some worst case scenarios, the cash back option can become something that some homeowners use whenever they need any kind of cash, resulting in serious financial risk.
What Cash Back Is Good For
Consolidating debt is one of the top reasons homeowners turn to a cash-back refinance. Only having to make one monthly payment as opposed to several has helped thousands of homeowners get out from under the burden of credit card debt and get back on financial track. Cash-back refinancing can also be used to rebuild bad credit. You can often get a cash-back refinance at interest rates of under 18%, which is much easier to handle than standard credit card rates.
The current state of the economy has left many in danger of losing their jobs. And the improved cash flow benefit of cash-back refinancing can allow those homeowners to put money away for necessary expenses or emergency situations.
Another benefit of this option are that you won't need to take out a second mortgage on your home, such as when you apply for a home equity loan; a cash-out refinance will increase your existing mortgage.
Cons Of The Cash Back
As with anything, there are risks to choosing the cash-back option. First of all, although interest rates are typically lower with the cash back loan, you may not be able to get the lower interest rate you desire. If this is the case, then this option may not be in your best financial interest.
Also, with this option, there is a risk that the closing costs you will pay will reach the hundreds or thousands. Worse than that, you may be required to pay these costs up front.
How much of your home's value you borrow can result in more costs as well. If you are using a cash-back refinance to borrow more than 80% of your home's value, this may put you in a position of having to pay for private mortgage insurance, which can be costly.
Finally, if you opt for a cash-back refinance and your home ends up losing its value, your financial situation may not be at all favorable if the time comes for you and your family to sell your home and move.
Cash Back, Or Other Options?
Instead of opting for a cash-back mortgage refinance, you may consider a HELOC (home equity line of credit) or a home equity loan. But these do carry their own risks.
The home equity loan, should payments become unmanageable, put your home at direct risk of seizure. As well, this loan type means that you are taking out a second mortgage on your home. And any change in your income or home's value may mean that you won't have the financial security necessary to repay the loan in full.
The home equity line of credit doesn't mandate that you take out a second mortgage. However, even the fact that it has a variable interest rate can be risky. If the prime rate rises significantly, you could be in trouble. Also, foreclosure can result if you default on the debt.