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Hey Isaac,

Cash out refi replaces your current mortgage with a new loan that is more than what you owe. You can channel the balance to other financial needs such as home improvements and debt consolidation.

Features of a cash-out loan

l Gives you the difference of the mortgage balance and your home's value

l Has a slightly higher rate because of the higher loan amounts

l Limits cash-out amounts up to 90 percent of your home's equity

Pros of cash-out mortgages

1. Large loan amounts

The equity of your house can total tens or hundreds of thousands of dollars. Therefore, it is an easy way of accessing a large amount of cash.

2. Potential tax benefits

If you use the money for significant home improvements, you might qualify for a tax break, which reduces the cost of the mortgage significantly. Consult an account to understand how you can ask for a break.

3. Relatively low rates

Since the home secures your loan, you will be liable for relatively low-interest rates compared to personal loans and credit cards.

4. Long repayment loans

When you replace your current mortgage with another one, you can stretch out the payment period. However, this comes at a cost.

Cons of cash-out loans

· Interest costs

You will start paying the mortgage a new, which means that you will have increased your lifetime interest expenses. Also, now that you will be borrowing more, the interest will also be significantly higher. You can use amortization tables to understand the costs better.

· Closing costs

Mortgages require substantial up-front closing expenses. You will pay for these costs, whether you roll them up in your repayment or you pay them right away. To close a loan, the borrower spends between a few hundred dollars to several thousand dollars.

· Risk of foreclosure

If you do not manage to clear the loan, you might lose your home. Unsecured loans are less risky than secured ones.

Mika
Account Manager
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