One of the great benefits of refinancing your home is the ability to get cash in your pocket as a result of the transaction. There are several different factors to consider when selecting the best refinancing option for you.
If you are ready to pursue the option of a cash out refinance, make sure to research all your options before you making a final decision. Doing the proper research ahead of time can ensure that you won’t spend more than you need to on closing costs and other fees and help you avoid any last minute issues that might sneak up around closing time.
Conventional Refinance
A conventional refinance mortgage simply involves refinancing your existing loan to take advantage of lower interest rates. The end result is a lower monthly payment or a shorter term loan.
Cash Out Refinance
The only difference between a conventional refinance and a cash out refinance is that the amount of the new loan is greater than the balance of the original loan. The overage is cash that you are able to take out and use for other purposes.
People often pursue cash out refinances to get money to complete home improvement projects, pay off high interest debt (such as credit cards), or to make major purchases.
Second Mortgage
Another option for leveraging the equity in your home is to take out a second mortgage. With this option, you are not replacing your original mortgage loan with a new one. You are getting an additional home loan, which means you will have an additional monthly payment. This option is sometimes the best when your current mortgage is not up for renewal and you need money as soon as possible for the emergency situation. To get approved for second mortgage the lenders sometimes not require the income verification and the interest rate is based on the loan to value ratios. This option is also more expensive than the conventional or cash out refinance and the interest rate starts from 5.5%.
Making Your Decision
Before selecting a mortgage broker or loan program, there are several additional things to consider. Check references on the brokers you are considering working with. Ask prospective brokers for background information, such as how long they have been working in the industry, the number of loans they have closed, and the average interest rate.
Make sure your broker is asking you the right questions. A broker should ask questions about what you can afford, how much cash you need out of your refinance, and what type of interest rate you hope to get You want your broker to know what you can afford, and what you’re looking for. If a broker doesn’t try to find out this type of information from you, he or she may not be the best person to handle your lending needs.
Find out the full scope of mortgage loan products that are available to you. Some lenders or brokers will have a favourite product that they promote, but their first choice might not be your best option. Some brokers push mortgage products that result in higher commissions for them rather than matching clients with programs that are best for the clients. You can make a better decision when you know all of your options.
When it comes to buying money, which is what you are doing when you get a cash out refinance, it is very important that you know what you are getting into. The key to getting the best deal on a loan program that is right for you is to spend the time doing the research and asking the questions necessary to make sure that you are choosing the right broker and loan program for your particular situation.
