Refinance vs. Cash-Out Refinance

When it comes to refinancing, there are several different options, because each homeowner has unique goals. The key to accomplishing those goals is to choose the refinance option that’s right for you. And we’re here to help you do it. To help you become familiar with them, here’s a brief introduction to each kind of home loan refinance.

Refinance Loans

A general mortgage refinance is one in which a homeowner essentially trades a previous loan for a new loan with no cash back from the transaction. There are several reasons a homeowner may want to get a mortgage refinance.

Rates are a big one. If rates are lower than they were when a homeowner first financed a home, refinancing may save money over the life of the loan, even with the associated closing costs.

In other circumstances, a borrower may have chosen a shorter loan term at the time of purchase. Perhaps the borrower retired, changed jobs, or took on additional expenses. Either way, the payment associated with a shorter-term loan may have just become too much to juggle. For this homeowner, a refinance offers an opportunity to trade the shorter-term loan for a longer one, which may lower the monthly payment.

Cash-Out Refinance Loans

A cash-out refinance allows the homeowner to refinance the home to pull back out some of the equity already paid into the home. For homeowners who have a lot of equity in their home, a cash-out refinance may be a solution for getting much-needed cash for a variety of goals. Perhaps the homeowner wants to get started on home improvements or pay off other debt.

But because the principal of the loan is being increased, a cash-out refinance is sometimes more difficult to obtain than a straight refinance home loan. Credit qualifications can be stricter, and the best rates may not be available with a cash-out refinance home loan. This is because by increasing the principal on the loan, the risk to the lender is increased.

At Crystal Clear Mortgage, we can help you explore your refinancing options, see how each would work for you, and guide you to the right choice for your goals. Contact us for help, or read what to do before you refinance. Homeowners who want to keep their current loan and borrow against their equity can also look at a home equity line of credit.