I want to refinance my existing mortgage, what is the cash-out option?

If you have enough equity in your property, you can refinance with a loan amount greater than your current mortgage.  You can use the money for home improvement, debt consolidation, or whatever else you would like.  This is a cash out refinance.  If you were to refinance and only pay off the existing mortgage and associated costs it is referred to as a rate and term refinance.  A cash-out refinance replaces your current mortgage with a new loan for a higher balance.  If the extra funds are used for paying off car loans, credit cards or even for home improvements, the mortagge industry still refers to the transaction as a cash out refinance.  A key point regarding cash out refiances is that at loan to values in excess of 75%, the lender generally charges a slightly higher interest rate.  In the past, this higher rate did not exist, a refinance was a refinance regardless of whether it was cash out or not.  When using the mortagge calculator to compute the payment on a cash out refinance be sure to check the loan to value and use the interest rate that applies for your transaction.

This entry was posted on Wednesday, December 10th, 2008 at 8:41 pm and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.