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Cash Out Refinance Good Idea

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Also known as cash-out refinancing, this approach provides additional cash that you can use to pay down credit cards, auto loans, and other debts. Debt consolidation may seem appealing because you reduce interest rates on your debt by converting consumer debts into lower-interest-rate home equity debts.

You can pay off debt with home equity in other ways — but doing so isn’t always a good idea. A mortgage refinance loan isn’t the only way to tap into equity in your home to pay off debt.

One thing that works in favor of a cash-in refinance is that the money you put in is leveraging a reduction on your total mortgage debt. So if you’ve got a $200,000 mortgage balance and put up $40,000 to be able to reduce your interest rate by a single percentage point, that’s like earning 1 percent interest on the entire $200,000!

Lending regulations have tightened over the years, and depending on your borrower profile, lenders may be hesitant to shell out the cash. Cash out refinance limitations. If your second mortgage is a HELOC, consolidating both loans may be considered “cash out” financing and subject to cash out.

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This seems like a smart idea. But rather than answering the question directly, I’m going to present the pros and cons of the strategy. At the end, I’ll give my opinion. The Pros of a Cash-Out Refinance on Your Home For Investment Purposes. The reader reports he’s been told the idea is crazy. But it’s not without a few definite advantages.

Examine this brief example of how a cash-out refinancing program would work. If the present home has a market value of $120,000, and the current balance on the existing mortgage is $70,000, the procedure would allow a homeowner to refinance for $100,000, eliminate the existing loan obligation of $70,000, and retain a surplus of $30,000 in equity.

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How to Refinance and Cash Out with Bad Credit | Mentorship Monday 100 Cash-out refinance. As an alternative to a home equity loan, it might be a good idea to refinance and cash out a portion of your home equity. This allows you to access a large chunk of money without selling your home. You might need the cash to start a business or pay for a child’s college education.