When to Consider Cash-out Refinancing?

Cash out refinancing means when a loan is taken out on property that is already owned by the person. This is basically a mortgage refinance on your own home loan.

Difference between Cash out Refinancing and Home Equity Loans:

  1. A home equity loan is a separate loan on top of your first mortgage.
  2. While a cash out refinancing is an alternate of your first mortgage.
  3. The interest rate is low in cash-out refinancing as compared to home equity loan.
  4. You have to pay a closing cost in cash out refinancing.


For instance, you owe $80,000 on a $150,000 house, and want a lower interest rate. You may want $20,000 cash, maybe to spend on some activity. You can refinance the mortgage for $100,000. Ideally, you get a better rate on the $80,000 that you owe on the house and you get a check for $20,000 to spend as you wish.

Cash-out Refinancing Suitable For You:

This depends on the amount of savings and expenses you do. When you decide to do the cash-out refinancing option, you need to remember that if you end up borrowing more than 80% of your home’s value, you need to pay for the private mortgage insurance. If you need to pay PMI, then go for the home equity loan.


  • Jack and Jill took out a $100,000, 30-year fixed rate mortgage on a $130,000 house in mid-1999.
  • The interest rate is 7.24% making their monthly payment of $681.50.
  • For 8 years, they did not go for refinancing.
  • They qualify for a rate of 6.27 percent in spring 2007.
  • They owe $90,000 and they need $20,000 for Jack’s surgery.
  • They can refinance $110,000 at a cost of $678.72 per month for 30 years.
  • They would pay a total of $244,340 in principal and interest for over 30 years.
  • They can even refinance the $90,000 at a cost of $555.32 a month and then take out a $20,000 home equity loan at 7.94 percent for 20 years.
  • That will cost $166.54 a month.
  • Now, they will have to pay $721.86 per month for 20 years, then $555.32 per month for the last 10 years.
  • Total cost over 30 years: $240,884.
  • With the last option, they will have to face problem with higher payments for 20 years, but will save about $3,456 over 30 years.

Spend Wisely:

Take a close look on how to spend the cash out refinancing method. Make a spreadsheet and then decide what you want to do.

You might also like

Mortgage Refinancing Basics Have you ever felt like wanting to repay off all your mortgage loan all at once? Have you ever felt overwhelmed...
A Guide to Mortgage Refinancing Loans Mortgage refinancing loans are available for individuals who want to replace their existing expensive...
2nd Mortgage Options and Advantages A good track record of borrower in borrowing practices can be very beneficial for a borrower in future...
Mortgage Refinancing By using Mortgage Refinancing you can save a lot of money or it may prove to be an expensive mistake....
Refinancing When Rates Fall – Is It A Good Idea? You may consider getting your mortgage refinanced when interest rates are lower. This is because the...
Debt Consolidation Companies

People who liked this Post also read

  • Drawbacks of Reverse Mortgage
    Reverse mortgage is a good way to draw equity on your home either in the shape of lump sum or installment. However, there are certain drawbacks of reverse mortgage that make it quite risky. These things include high fees and charges, and unfavorable loan ...
  • How To Get The Best Refi Rates?
    When you receive certain quotes, make sure you asses them before accepting one of them. The factor which you need to asses is the markup attached to your quote. Often what brokers do is that they add an amount to the final quote which is their part of the...
  • Advantages & Disadvantages of Reverse Mortgage
    Reverse mortgage is specially designed for citizen who are 62 years of age or more. Reverse mortgage is quite different from other mortgages. There are no strict requirements to apply for this loan. It has become a popular loan in recent years and people ...
  • Drawbacks of Home Equity Lines
    Home equity lines of credit is a good way to meet your financial needs. It is especially best for homeowners, who are running out of finance and unable to fix home repairs, pay off medical bills, finance child's education, and other activities that need c...
  • Home Equity Loan
    Home equity loans allow a homeowner to borrow money by pledging their houses.Borrowers who want to borrow sort of large amount of money find the home equity loan to be suitable. It is a safe kind of loan for Lenders. Because no one can run with his house....

is an experienced journalist.

Leave a Reply

© 2012 Loan Mortgage Credit!. All rights reserved.