You want to refinance your Kansas City mortgage rate, but also need some extra cash for things like home improvements. Rather than get a home equity loan, you could instead opt for a cash-out refinance.
What is Cash-Out Refinancing?
A cash-out refinance is an alternative to a home equity loan, as you are not taking out a second mortgage. Instead, you are refinancing your mortgage for more than what you owe, then pocket the difference to be used at your own discretion. It is essentially a new first mortgage.
What to Watch Out For
While normal refinancing lowers interest rates, your term, and monthly payments, cash-out refinancing results in higher monthly payments and interest rates. If you are close to paying off your mortgage, hold off on refinancing. Depending on the mortgage’s terms, it will cause your payment schedule to carry on longer.
Remember that by cashing out, you are losing equity in your home. There is the risk of going underwater through cash-out refinancing if you take out too much equity; especially if you refinance too many times in order to use the money for things like home improvement. Remember that the money you get from a cash-out refinance is not free money. Spend the money you get back responsibly.
Advantages of Cash-Out Refinancing
Since you are pocketing the excess money, you have extra cash to save in case of an emergency or if you lose your job. By using the money you get to pay off credit cards, for example, you can improve your credit score.
Normally, a cash-out refinance is a good idea when you can get a good interest rate on it. You have to pay interest on the cash that you got out of it in addition to the amount of the mortgage. Cash-out refinance isn’t always in the best interest of the borrower. Weigh your individual situation carefully before deciding.