Cash Out Refinancing, A Few Things to Know

Refinancing your mortgage is to pay off your existing mortgage with another one at a lower rate.

A cash out refinance is refinancing your existing mortgage and borrowing some of your equity in a lump sum to use for other needs. Such as home improvement, college tuition, family vacation, a new car, etc.

Other reasons people use a cash out mortgage refinance is to use the equity in their existing home to invest in real estate, or start their own business.

Cash out refinances are very good tools when used for the right reasons. It is not wise to do a cash out refinance on your home if you are going to receive a higher interest rate than what you already have on your current mortgage.

If you have a really good rate on your current mortgage, it would be wise to leave it alone.

However, if you are looking to tap into the equity you have acquired in your home without touching your current mortgage, you may want to think about getting a Home Equity Loan.

With a home equity loan you can borrow the equity you have acquired without touching your first mortgage. The home equity loan is also known as a second mortgage.

For example, if you have acquired $50,000.00 worth of equity in your existing home, you can borrow what you need of that equity, without your first mortgage being affected.

The cash out refinance and the home equity loan are a very similar product and serve almost the same purpose, your situation should determine the right choice for you.

As always, I want to leave you with this reminder. Do your homework, educate yourself, and take some time to shop around for the best deal.

Jennifer Hershey has more than twenty years of experience in the Mortgage Industry as a loan officer. She is the owner of http://www.explainingmortgages.com/, a mortgage resource site devoted to making mortgage terms and products easy to understand.