6 Benefits from a Cash-Out Refi

Young Couple Rennovating Property Together

Young Couple Rennovating Property TogetherIf you’re a homeowner with considerable equity in your home, you might want to consider a cash-out refinancing plan to finance home projects or eliminate high interest debt. In a nutshell, this arrangement allows you to initiate a new mortgage with a larger principle than your existing one – then, you obtain cash on the balance between the two amounts. Used responsibly, there are several advantages to a cash-out mortgage, including these top six benefits.

  1. You may be able to obtain a better interest rate. As compared to other types of property-based loans, a cash-out refinancing usually offers lower interest rates. Home equity, home improvement and business startup loans are typically a few fractions of a percentage higher. A lower interest rate means reduced monthly mortgage payments.
  2. You can improve your on-hand cash flow. You can apply funds from cash-out refinancing to balances due on high-interest debts or credit cards accounts. Eliminating these debts puts you in a better cash liquidity position for unexpected costs or emergencies. You’ll still carry the debt through the refinancing, but you’ll only be making one payment per month on a loan carrying a much lower interest rate.
  3. You’ll get the opportunity to improve your credit score. When you pay off or pay down balances on revolving debt or credit cards, you improve your credit rating. Credit cards that you’ve maxed out have a severe negative impact on your score, as are those where you’re only paying against interest instead of the balance.
  4. There are tax advantages of cash-out refinancing. You’ll take advantage of a couple of tax benefits with a cash-out refinancing. First, the interest you pay is tax deductible; the interest you pay on other types of debt or credit cards is not. Second, some of the closing costs you’ll incur through the refinancing process are also not subject to tax liability.
  5. Fees for refinancing can be minimal under certain circumstances. There are costs related to refinancing your mortgage, including application fees, getting your credit rating, document review expenses, and title insurance and search. However, if you have high equity in your home and a great credit rating, these costs may be reduced. In addition, if you stick with the same lender that issued your original mortgage, some of these fees may not be necessary the second time around.
  6. Cash-out refinancing can help you boost your home’s fair market value. Many homeowners use the proceeds from their cash-out refinancing to fund home improvement projects. These renovations almost always cause the fair market value of the property to increase, whether the projects are interior, exterior or add-ons to the existing square footage.

While homeowners must use caution when arranging a cash-out refinancing plan, the advantages can be significant under appropriate circumstances. If you’d like to know more about whether a cash-out refinance is right for you and qualification requirements, consult with a refinancing professional for details.

*Disclaimer: Paramount Equity Mortgage is not a tax advising company. If you have any questions, please reach out to your CPA for tax advice or other tax related questions.

 

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Is It Time to Refinance? 5 Factors to Help You Decide

Beautiful curb appeal of American house in olive exterior paint.

When a new mortgage replaces an original mortgage, the process is known as refinancing. You, the borrower, can get a much better interest rate if you choose to refinance. In a shaky economy, funding a home mortgage can prove troublesome. Ignoring the problem will not only impact your credit score but could leave you financially unstable.Beautiful curb appeal of American house in olive exterior paint.

Not sure if you should to take out a new loan of this kind? Absorb the following factors to make an informed decision about refinancing:

  1. Your Credit History Has Improved - A lender will always take a borrower’s credit score into account before offering a loan. A credit score will be negatively impacted if a payment is failed to be made or if a payment is made late. These two reasons will cause interest rates to be higher. A borrower with a high credit score will be considered an ideal candidate for refinancing, which will in turn be given a lower interest rate.
  2. Your Income Has Increased - When your debt-to-income ratio changes, it will be the perfect time to refinance your mortgage. The extra monthly cash flow you are receiving, whether it is from working overtime or you were given a raise, can be used to fund a mortgage refinance. Using extra cash to pay off a mortgage loan will ensure your payments are made on time. As a result, your credit score will improve and your chances of obtaining another loan in future will increase.
  3. Your Debts Have Decreased - One of the main reasons why a lender will turn down a borrower for a loan is because their debts are too high. Committing to a mortgage refinance means that you need to be in a comfortable financial position to do so. Aim to repay your debts little by little and then explore your refinancing options.
  4. Your Home Value Has Increased – Have you thought about how much equity you have built up to refinance a mortgage? A great rate is guaranteed once your equity increases, so pay attention to changes in property value if you are keen to refinance with low interest rates. In order to estimate your home’s value, read news reports, assess property tax valuations, and investigate the recent sales of similar properties.
  5. You Want A Fixed Rate Mortgage - Fluctuating interest rates may leave you feeling worried. After all, how are you supposed to relax if your monthly payments increase and your income stays the same, or decreases? Replacing an existing loan with a mortgage refinance that has a fixed rate is a better option than an adjustable rate mortgage because you will know precisely how much you are paying and when.

Refinancing could leave you with a much fatter wallet since you will be spending less for your home in the long run. Lower interest rates will relieve you of some pressure and make it easier for you to avoid late payments. When you consider the fact that late payments will have a negative impact on your credit score, it’s pretty clear to understand why so many homeowners are refinancing a home mortgage.

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How to Know Which Refinancing Option is Best for You

Businessman's hands with calculator and cost at the office and F

Businessman's hands with calculator and cost at the office and FA medley of thoughts will cloud your mind when you are on the verge of refinancing. Since refinancing rates tend to creep up as interest rates lower, it can be a tricky task trying to refinance when interest is at its lowest. In order to accomplish this successfully, you must have your head in the game and really be aware of what is happening in the world of financing. This can be difficult without guidance, so aside from consulting with a lender, let this article be of use to you.

Why are you considering refinancing in the first place?

Everyone’s reason for refinancing will depend on their individual circumstances. Lenders will deal with myriad cases that differ somewhat. You can access the equity your home has built up if you refinance. What’s more, there is a good chance that you will be able to get a higher interest rate if you choose to refinance to a cost-effective alternative plan. Paying a reduced monthly interest rate will enable you to set aside costs for other things, such as home improvements.

Selecting a Funding Strategy to Suit Your Mortgage

If you really think that refinancing is the strategy you ought to go down, now is the time to browse and consider your funding options. Interest rates change all of the time and with these changes comes a wave of panic from many borrowers.

Stay calm and take into account the following mortgage refinancing options:

Shopping Around and Evaluating Your Offers

Do not underestimate the importance of actually shopping around and not opting fir the first offer you are presented with. Of course, lenders are going to try and lure you in some way or another, whether it is by dropping the interest rates for the first year with a flexible loan or enticing you with a fixed rate refinancing loan with an attractive interest rate. Instead of jumping at the chance to refinance your property, shop around and use the Internet to your advantage. You would be surprised at how frequently lenders update their loan options and refinancing rates. To avoid missing out on a good deal, research and review for a few weeks (at least) before making your move.

Taking Time into Account

Time is a key variable when it comes to refinancing a property. The length of time in which you wish to refinance the home will be taken into account by the lender(s) you approach. If you keep in mind the fact that mortgaging costs can be impacted greatly depending on the length of the plan you choose, it is wiser to opt for a longer loan.

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The Financial Benefits of Refinancing

Coins in glass jar for money saving financial concept

Coins in glass jar for money saving financial conceptRefinancing is something that most adults will think about at some point in their lives. The reasons why homeowners choose to refinance will depend on their personal circumstances. One of the main reasons being because they are no longer able to afford the monthly mortgage payments and are therefore seeking out an option with a lower interest rate. Converting to a fixed-rate mortgage from a floating rate mortgage (better known as an ARM or adjustable-rate mortgage) could ease the financial burden faced by homeowners who are trying to hide from the rate-inflating cloud that looms over them.

Whatever your reasons for refinancing might be, just keep in mind the basics before you take the next step.

Smart Reasons to go Down the Refinancing Route

Do you want to shorten your mortgage? If so, you should definitely consider going down the refinancing route. In your particular situation, an option that could mean paying lower interest rates is definitely a smart move.

Here are some top reasons to refinance:

Consolidate Debts – When debts pile up, a homeowner can relieve themselves of financial worries by using any equity that has accrued on their home to reduce the debt pile.

Explore Loan Types – Unless you know exactly what loan options are made available to you, how are you supposed to know which type suits your circumstances? Although interest rates might be lower when you first start contributing to a mortgage with a variable rate, they might spike when you least expect it.

Adjust Repayment Terms – Falling into a financial predicament is nothing to be ashamed about. Simply take action and prevent the problem from worsening and tarnishing your credit score forever by refinancing. By doing so, you can discover what options are available regarding repayment terms.

Does refinancing have an impact on credit rating?

We could have talked about this in the list above, but let’s go a little more in-depth about refinancing and the way it could influence your credit score. The truth is that your credit score could be positively impacted immensely if you finance wisely. Don’t expect the change to be instant, but do expect it. A good credit will not only make mortgage hunting easier but also, job searches! For this reason, financing is a long-term worthwhile option that could present you with further lending possibilities for the future.

Things to Keep in Mind Before Refinancing

The standards that have been set out for loan approval are not quite the same these days as they were many years ago. If your credit score is below 720, obtaining financing might be a struggle. Refinancing with home equity puts you in a good position, as does having a good debt-to-income ratio. The rules for lending based on the debt-to-income ratio have tightened up, also.

Generally, you will be granted refinancing if your ratio falls somewhere between 36% and 40%. If you are willing to pay an increased interest rate to fund the closing costs, this will improve your chances at obtaining home refinancing.

Putting Things into Perspective

We all have debt obligations and as nice as it would be to not lose a valuable night’s sleep over them, it happens. With refinancing options, you can lift a weight off your shoulders. Furthermore, the reduced monthly payments could aid you in improving your credit score, so keep your options open and make an informed, confident decision.

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Reason’s for Refinancing

Refinancing your home is a tried and true method for homeowners to save money or enjoy financial flexibility. With near historic low interest rates and the possibility of rates starting to increase again soon,1 many financial experts believe that now is the time to refinance. However, it’s important to understand why you should consider refinancing, as it may not be the best option for your particular circumstances. The following details just a few key reasons to refinance your home.

Reduce your interest rate

Right now interest rates are near historic lows. While they’re not likely to skyrocket within the next few years, there’s no guarantee that they’ll stay this low either. If you bought your home during a period where interest rates are higher, now is the time to think about refinancing. Filling out the right paperwork and providing the necessary documentation could save you tens of thousands of dollars over the life of your mortgage.

Reduce your monthly payment

When you refinance a mortgage, you may be able to lower your monthly payment, which would save you interest. Then you have the flexibility to save or invest this money as you wish. Keep in mind that sometimes lowering the monthly payment increases the term of the loan. However, depending on your specific financial situation, this trade off may make sense.

Switch from an adjustable-rate mortgage to a fixed-rate mortgage

If you currently have an adjustable-rate mortgage or are nearing the end of the fixed-rate period of a mortgage, now is an ideal time to refinance into a fixed rate loan. As mentioned previously, interest rates are low currently, but they won’t be this low forever. If you still have a number of years left on your mortgage, locking into a low rate sooner rather than later will protect you from potential interest rate increases in the future. A fixed-rate mortgage also makes budgeting easier because you know exactly how much you’ll have to pay into your mortgage monthly for the life of the loan.

Cash out home equity

Refinancing a home may allow you to cash out your home equity. Depending on the amount of money that you’ve invested in the home and what you’re planning to do with the money, it can be a sound financial decision. You may want to cash out a portion of your home equity to start a small business or purchase an investment property3 or even invest in the home itself. For example, if the home needs a new roof, you can take funds out of the equity to pay for it. Be honest about whether or not you’re making a good investment and if you’ll be able to manage the extra debt successfully.

Before you pull the trigger and refinance your home, take closing costs and other expenses into consideration. Depending on the loan that you select for your refinancing terms, you may be responsible for hundreds or even thousands of dollars in fees. If it will take you several years to pay off your refinancing expenses or you’re planning to sell your home in the near future, most likely it doesn’t make sense to refinance.

 

 

 

Blog content information referenced from the following sources:
1http://money.usnews.com/money/personal-finance/articles/2015/02/05/3-reasons-to-refinance-now
2http://www.getrichslowly.org/blog/2013/03/21/5-reasons-to-refinance-your-mortgage/
3http://www.getrichslowly.org/blog/2013/03/21/5-reasons-to-refinance-your-mortgage/

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Breaking Down the Basics of Refinancing

Breaking Down the Basics of Refinancing

Breaking Down the Basics of RefinancingMost homeowners have heard about mortgage refinancing in ads or from friends and family, but may not completely understand what’s involved with the process. Refinancing offers many financial advantages, so you should get to know the basics to determine whether it’s a smart option for you. Here are some answers to the most common questions people ask about refinancing and how it works.

What is refinancing? Refinancing is when you make certain changes to the existing loan on your home, essentially creating a new mortgage through the process. You’ll actually pay off the old financing arrangement by applying your existing equity and you’ll obtain different terms on your interest rate, monthly payments and loan duration. (more…)

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6 Benefits from a Cash-Out Refi

6 Benefits os a Cash out refi

6 Benefits os a Cash out refiIf you’re a homeowner with considerable equity in your home, you might want to consider a cash-out refinancing plan to finance home projects or eliminate high interest debt. In a nutshell, this arrangement allows you to initiate a new mortgage with a larger principle than your existing one – then, you obtain cash on the balance between the two amounts. Used responsibly, there are several advantages to a cash-out mortgage, including these top six benefits. 

You may be able to obtain a better interest rate. As compared to other types of property-based loans, a cash-out refinancing usually offers lower interest rates. Home equity, home improvement and business startup loans are typically a few fractions of a percentage higher. A lower interest rate means reduced monthly mortgage payments. (more…)

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Cash Out Refi – What is It Exactly?

cash out refinance paramount equity

While there are many different reasons to refinance your existing mortgage, many homeowners do so with the intention of getting access to cash. A cash out refi is a process that involves getting cash out of the equity in your home by refinancing your primary mortgage.

What is a Cash Out Refi?

The basic idea behind this type of refinance is simple. In order for a cash out refi to work, you must owe less than what your house is worth. You take out a new mortgage
for the full value of your house and then use some of the money to pay off your existing mortgage. The money that is left over after paying off your first mortgage is yours to keep. At that point, you’re left with a mortgage for the entire value of your house and you have some cash to use as you please. (more…)

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