Cash-Out Refinancing vs Traditional Refinancing
When you refinance your mortgage, you have two options: You can refinance your existing loan to a new loan with a new rate and term (known as a traditional mortgage refinance), or you can take out above and beyond what you owe on your current mortgage to put some extra cash in your pocket (as known as a cash out refinance). Of course, if you do opt to take out cash from your home, your loans balance will be greater and your monthly payment will likely increase.
Reasons for cash-out refinancing include:
- Paying off credit card debt (or other high interest debts)
- Purchasing a car
- Marking home improvement/repairs
- Paying for college expenses
- Creating an emergency fund
- Lower interest rate
Reasons for traditional refinance include:
- Lowering your interest rate
- Lowering your monthly payment
- Adjusting your loan term
- Converting from a variable rate to a fixed rate
- Restructure debt
The Bottom Line
Don’t assume that refinancing is always a good or a bad idea. It never hurts to explore your options with a Connect LIVE agent.
As a general rule of thumb, if you’re within the first few years making mortgage payments and you can knock the interest rate down by 0.75 percent or more, you should consider it. The earlier within your mortgage you refinance, the better.