Wolf Pack Inc

Cash out refinance is one of the many homeowner tools to repair what a difficult economy has broken: the piggy bank. While the cash out refinance is part of what created the unstable mortgage market we see today, for homeowners that have enough equity in a down market to get a cash out refinance, it is a method to clear the decks of other obligations.

A cash out refinance is one where the new loan is greater than the original mortgage. In essence, it is a way to access the equity you have built by buying a home and paying your mortgage. This cash can be used for many things: paying off higher interest debt, your child’s education, even medical bills.

The advantage of a cash out refinance in a down market is that you are unlikely to create a scenario where your mortgage exceeds your home value. Unlike the peak of the market years, appraisers and financial institutions tend to be conservative in their valuation of property, leading to a more tenable loan.

Provided the Loan-to-Value percentage remains under 80 percent of the value of your home, the chances are that the only costs you will incur with a cash out refinance are the standard closing costs, which are generally lower that purchase loan origination. Where you have to start really considering the cost impact of a cash out refinance is when your new mortgage has a high enough LTV to require private mortgage insurance (PMI). That can make the monthly cost of your mortgage grow substantially.

Only the homeowner can know whether a cash out refinance is the right choice for his or her situation. With mortgage rates hovering at historically low levels, it is a good time to consider a cash out refinance. A solid credit history and a realistic valuation can yield a great financial tool for the responsible homeowner in the form of the cash out refinance.