Should I Take Cash Out When I Refinance My Mortgage?
Cash-Out Mortgage Refinance
When you refinance your mortgage, it may be possible to end up with some cash in your pocket -- that's why it is called cash-out refinancing.
You can only drag cash out if you have built up a fair amount of equity in your home. Cash-out refinancing was very popular in the days of soaring home prices.
Unfortunately, a great many homeowners used the cash for frivolous reasons -- fancy vacations, luxury items, expensive cars, etc. Cash-out refinancing became a trap when housing values took a dive.
Homeowners were left with the higher cash out mortgage balance -- their house was worth less or even "underwater" -- and the cash was long gone.
People may be tempted to pay off large credit card balances with the cash from refinancing. This also can become a dangerous trap.
Unless the underlying reason is resolved as to why you ran up the credit cards in the first place, the odds say that you will be charging big time again.
Credit card balances can usually be negotiated downward with the credit card company or even eliminated by filing bankruptcy.
Cash-out refinancing may have some merit if the cash is used for a good cause --such as college tuition payments, needed home improvements, or medical bills.
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But it is always best to find some other way to pay these expenses instead of increasing your mortgage and putting the roof over your head in greater risk.
The simplest but most overlooked way to pay for needed expenses is to cut down on the expenses you don't need. You know what I mean:
- Out of sight cable/satellite bills.
- Thru the roof cell phone bills.
- Constantly eating out at restaurants.
- Always buying a new car -- usually cheaper to fix your old one.
- Fees for a health club that you don't use.
- And a million other unnecessary drains on your money.
You definitely don't want to make taxable withdrawals from your 401k or IRA -- the taxes and penalties could easily exceed 35% of your withdrawal.
A home equity loan may be a better way to put cash in your pocket instead of a cash-out home loan refinance -- especially when the interest rate on your new refinanced mortgage is.... read more »»
Increasing Your Mortgage To Get Cash -- Usually Not a Good Idea.
