Could A Cash Out Mortgage Be For You?

[Apr 16, 2008.]

 

If you have ever wanted to get hold of some of that cash value that is tied up in your home's equity, then it is possible that a cash out mortgage may be your ticket. These mortgages are becoming popular lately because they enable people like you to get the access they want. The cash becomes yours to do with as you please once your mortgage becomes approved. Here is what you need to know about cash out mortgages to help you decide if it is for you.

Refinancing Is Necessary

In order to get at the cash, you will need to refinance your house. This means that you will need to take this into some serious consideration before you get the money. If you are planning on staying in that house for the next five to ten years, then it is probably a good deal. Any less than that, though, you might not find it worth the cost.

If you should decide to refinance, then you should be aware that it will cost you about as much as your first mortgage did. It will take you several years to recover from the expenditures before you start seeing a real profit.

Figure Out How Much Cash Is Available

When you get an accurate picture of the current value of your house, then you can determine how much cash may be available to you. For instance, if you bought the house 10 years ago for $135,000, and you have $100,000 more to pay, then your equity would be $35,000 - but that would be back then. Since then, you find that the value of your house has increased over those 10 years, and it is now worth $185,000. That means that there is now $85,000 in equity locked in your house.

Decide How Much Cash You Need

Out of the equity that is available, the $85,000 in this case, you will only want to take out a large portion of it - at most. If you refinance with a cash out mortgage (or any type of mortgage) for more than 80% of the value of the house, you will need to have Private Mortgage Insurance (PMI) added to your monthly payments. You want to avoid this simply for the reason that it will unnecessarily add tens of thousands of dollars to your overall mortgage cost.

Some quick calculation will show you how much cash you can get without PMI being added. Simply multiply $185,000 by .8, and you get the answer of $148,000. This amount is the maximum that you would want your cash out mortgage to be, and after you subtract what you still owe - the $100,000, that means that you have a maximum of $48,000 available as cash.

Watch The Market Rates To Decide The Best tim

If you should decide that this is the way you want to get your equity, then you need to do some planning as to when you get your cash out mortgage. You should watch the housing market to know when the best rates become available, and then lock your rate in as soon as you see the rate you are looking for. If possible, you want to try and get a rate that is at least 1% lower than what you currently have. Also, stay away from a cash out mortgage that has a penalty attached for early payoff.

More Information:

• How To Tell When It Is A Good Time To Refinance
  With the economy fluctuating as much as it is today, every now and them it produces a time when it is a good idea to refinance your mortgage. You have heard of others making that change, and may have heard that some got a much better deal. Mortgages are different though, and so are people's circumstances.


• What Is A Home Equity Line Of Credit And Is It For You?
  A home equity line of credit (HELOC) can be a real help to you financially if you need to get a source of money - and have some equity in your home. It gives you various options and a degree of control that you do not have with other type of mortgages.


• Home Equity Loans - How To Get A Good One
  If you have a home, then you already know that you can tap into your home's equity and use it any way that you want. Many lenders have provided you with a wide variety of ways for you to access that money.

External Links:

• Refinance cash out advice - advice from HUD