Five Myths About Cash-Out Refinancing
Cash out refinancing is a great option for many homeowners. Cash out, as opposed to traditional refinancing options, allows for greater flexibility in how you use your funds, so you can consolidate credit card, student, or vehicle loan debt, make home updates, or come up with other practical uses which can help you in the future. Unfortunately, many people are suspicious of cash out refinances for one reason or another. This week, we’re gathering up 5 of the most common issues homeowners cite for not getting a cash out refinance and telling our readers the reality of refinancing with cash out loans.
Cash out refinancing is “dangerous.”
Many homeowners see cash out refinances as “dangerous,” either for their financial future or the safety of their home. In actuality, cash out refinancing only puts your finances at risk if your new payment schedule is too steep. To stop this from happening, talk to an expert if you’re looking into a cash out refinance. They’ll let you know what your new payments will look like after your rates and terms change, so you can decide for yourself whether refinancing it the right option for you. Cash out refinances, just like any loan, should be dealt with responsibly for the best results. Talk through your options with a professional and do enough research to ensure you don’t bite off more than you can chew.
You won’t qualify for a cash out refinance.
While it’s true that refinance options are typically easier if you have a strong repayment history and high credit score, many are more eligible to refinance than they believe. In fact, you may be eligible even if you’ve got bad credit or have been turned down for a refinance in the past. If you were turned down before due to a too-low credit score or lack of equity, as little as six months of working on your finances can mean the difference between a “no” and a “yes” in many cases!
Cash out refinances mean starting your loan all over, leaving you with nothing.
This myth is often perpetuated by a very basic understanding of cash out refinancing. Yes, technically you’re “cashing out” your equity for spending money. However, you still have all those funds; they’re just in cash now! Because so many homeowners opt for a cash out refinance to complete home improvement projects and updates, a cash out refinance can actually be a way to add equity quickly, not take it away. On the other hand, if you’re using your cash out refinance to consolidate and pay off debt, you’re still helping raise your credit score to better care for your financial future! As long as the funds from a cash out loan are used responsibly, you’re very likely to be better off after getting one than before.
If you’ve already refinanced, you’re out of luck.
Fortunately, there are no limits to how many times you’re allowed to refinance your home. Most professionals in the lending industry would actually encourage homeowners to refinance more than once, whenever rates drop lower than what you’re currently paying. Now, this one is tricky because if you’ve already taken out a cash out refinance recently, you’ll probably have to wait a little while. Typically the industry standard is about six months. If it’s been longer than six months since your last refinance (of any kind) you’re likely still eligible for a cash out loan.
Cash out loans won’t help you consolidate debt.
This myth is simply false. If done correctly, cash out refinances can help reduce high payments from multiple lenders under one, much lower payment. The example charts in this article from The Mortgage Reports can help illustrate how paying different rates toward different amounts to different lenders can result in a much higher payment than the alternative provided by a cash out refinance.
Ready to talk about your cash out refinance options with a professional? Oceanside mortgage has the team to help you refinance the right way! Call or email us today to learn more about cash out refinancing.