The main reason to do a cash-out refinance is that you get immediate liquid cash that you could use for important things like high-interest debt payoff, necessary home repairs, etc.

Like with any mortgage refinance, the other benefit is that you might be able to negotiate more favorable loan terms. Specifically, you’ll want to shoot for a lower interest rate on the mortgage loan. Ideally, the interest you save over the life of the loan should outweigh the refinancing costs, so you’re coming out ahead in the end.

People also often refinance in order to reduce their mortgage payments or shorten their loan terms. However, it’s unlikely you can do either of these with a cash-out refinance since you’re adding to your loan.

When should you consider a cash-out refinance?

Unless you’re in a very dire position, you should be extremely cautious about choosing a cash-out to refinance. Maybe you need money for a home repair that really can’t wait, or you have a medical emergency that can’t be negotiated, or you’re drowning in credit card debt and would rather have extra mortgage debt at a lower rate instead of the high interest on credit card debt.

Those could all be valid reasons, but make sure to explore all your other options before choosing a cash-out to refinance.

Think about how long it took you to earn the equity you have in your home. You don’t want to give that up for a reason you don’t really need, like a new patio or swimming pool.

Before getting one, also carefully consider how it will affect your short-term and long-term plans. Would a higher monthly mortgage payment fit into your budget? Will having a longer mortgage term make it difficult to pay off your house by the year you want (e.g. retirement)?

Crunch all the numbers and make a solid plan that considers both your current circumstances and your future. Call us today to speak to a licensed Loan Officer.