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Refinance/Cash Out Loans

Cash-out refinances are a popular way for borrowers to access the equity in their homes to pay down consumer debt or make additional purchases. Borrowers need to make a risk-based assessment of whether extracting equity from a home is economical. Borrowers also need to be aware that refinancing a mortgage has costs, including the fact that the lender may charge a higher interest rate on a cash-out refinance than a rate-and-term refinance. 

Doing a cash-out refinancing may reduce the interest expense on your existing first mortgage. XM Loans can help you determine if refinancing your first mortgage makes sense. Use your existing loan balance and current market rates to determine how many months it will take you to recoup the closing costs on a refinancing. If you plan to be in the house longer than the payback period, then refinancing can save you money. But if you can't save money by refinancing your first mortgage, then it makes more sense to borrow using a HELOC or a Home Equity Line of Credit [Home Equity Loan].

How much you can borrow depends on your home's appraised value. Be warned: No one really knows what a house will fetch until a buyer and a seller agree on a price. The only way a bank can estimate your home's worth is by bringing in an appraiser to evaluate the property.  The higher the appraised value of your home, the more perceived equity you have at your disposal. Remember: Paper wealth isn't the same as real wealth. Don't be fooled into thinking otherwise. For a more accurate estimate of your home's worth, go to open houses and see what neighbors are asking for comparable properties, and search through the Registrar’s records for recent sales. If your appraised price seems too good to be true, it might be worth your while to get a second opinion from another appraiser for an unvarnished opinion.

Don't borrow a penny more than you need. Loans that add 20% to the original balance are three times more likely to end in foreclosure than are loans that add just 3%, according to some sources. So rather than seeing how much the bank will lend you, identify how much debt you wish to pay off or how much a project will cost. While it might seem tempting to borrow an extra $10,000 for a family vacation, it's a foolish move. That money will run through your hands quickly, and you'll most likely regret the decision.

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