Why Should I Avoid a Cash-Out Refinance?
College tuition With the rising costs of higher education, the money from cash-out refinancing can allow you to pay you www.paydayloansohio.net/cities/racine/ or your relative’s college tuition without having to enter into the higher-interest debt of a private student loan or federal parent PLUS loan.
These closing costs can vary between 2-5% of the loan amount, meaning a $150,00 cash-out refi requires a $7,500 out-of-pocket expense
Home improvements and repairs One of the most common reasons for securing a cash-out refinance is for home improvements, upgrades, and repairs, which can help you twofold.
First, when done right, updating key areas of your home, such as the bathroom or kitchen, will often increase its value, thereby increasing your equity. In this situation, the refi almost pays for itself. Second, if you use the cash to improve your home you may be able to deduct additional interest payments from your taxes.
“Homeowners with sufficient equity can take advantage of the current historically low interest rates to secure tax-free cash for projects that can increase the value of their home,” says Bill Banfield, executive vice president of capital markets for Rocket Mortgage.
Possible high, up-front closing costs Some lenders will fold any closing costs or fees into your monthly mortgage payments or you could pay the closing costs upfront.
High break-even point As mentioned, it’s important to calculate the break-even point in order to determine whether refinancing is right for you. High-break even points don’t provide the financial relief needed to justify cash-out refinancing, particularly if you’re thinking of moving within that time frame.
Foreclosure risk No matter the purpose for which you decide to refinance, you’re going to be putting your home at risk if you ever default on your payment. Continue reading “Why Should I Avoid a Cash-Out Refinance?”