Is a Cash Out Refinance loan the best option?

When it comes to getting a cash out refinance loan, this is a method that enables the homeowner to refinance their mortgage at a price that is greater than currently owed on the home.  The home owner is allowed to do whatever they wish with the difference.  For example: Pretend you currently owe $100,000 on a $160,000 home, and you desire to get a lower interest rate. You also desire to have $30,000 in cash to spend on whatever your hearts desire.  Well a cash out refinance loan gives you the opportunity to refinance your mortgage for $130,000.  So the ideal way of thinking is that you get a much better rate on the original $100,000, and you still get a big ole' check for $30,000 to pocket. Like the way that sounds?

If you are wondering why not just get a home equity loan, then it is important that you understand that makes a home equity loan and a Cash-out refinance loan different. First of all when you get a home equity loan, you are not replacing your first mortgage, but you are actually getting a separate loan on top of the first mortgage, meaning you now have two loans to pay, where as a cash out refinance loan is simply replacing your 1st mortgage. It is also important to note that interest rates are usually higher on a home equity loan than they are on cash-out refinancing. Also note that you usually wouldn't pay closing costs if you got a HEL, but you will pay closing costs when refinancing your mortgage. Now if you are in the situation where your mortgage that you have now is sitting at a interest rate that is lower that you would get when refinancing, then the smarter decision would be to get a home equity loan. Or if you happen to be years into your current mortgage say, twenty years into a thirty year mortgage, and are at the point where you are currently paying more principal than interest, it probably wont be the ideal decision for you to refinance...... even if the rate you have is a little higher. So yes, there are definitely things that must be considered.

So when trying to decide if taking out a cash out refinance loan is the best option for you, it is good to remember that you will have to pay PMI if you borrow above 80% of the value of your home. So add up all expenses when it comes to picking between the two options of picking the cash out refinance loan & the home equity loan because if you have to pay the private mortgage insurance, then it could possibly be cheaper to just go ahead and get a home equity loan instead.  And ultimately you want to make a smart decision as to what you are going to spend your money on.  We are telling you right now to spend it on something that is going to profit you, or be of value to you in the future.  Use it on adding an extra room on your home.  Use it on something that will add value to you.  Don't use it to get you into further debt.  Always do your math, and you should make the right decision when it comes to a cash out refinance loan.