10 Things to Keep in Mind Before You Do a Cash-Out Refinance on Your PDX Home
What You Need to Know Before You Refinance Your Portland Home
In Portland’s competitive real estate market, lucrative mortgage rates are often lower than rates that homeowners paid several years ago. And when mortgage rates fall, refinancing options become an attractive way to lower your monthly home payment.
But before you decide to do a cash-out refinance on your Portland home, be sure to consider these important implications of this very important monetary decision.
Refinancing Your Home Can Improve Your Interest Rate
For Portland homeowners who purchased real estate in the early 2000s, a cash-out refinance could provide opportunity to lock in a lower interest rate. While today’s mortgage rates are considerably lower than they were a decade ago, it’s important to remember that standard refinancing also provides opportunities for a lower rate, and a cash-out refinance brings the added benefit of cold, hard cash.
Know Which Loans Are Eligible for Cash-Out Refinancing
If you do decide to pull cash out of your next home loan, it’s important to know which loans are eligible for cash-out refinancing. According to specialist Leeann Teagno, “The FHA, VA, and USDA loan programs also offer cash-out refinancing. Unlike the streamline refinance, however, a FHA cash-out refinance requires more documentation and verification than a streamline refinance.”
Don’t Compromise Your Loan Term When You Refinance
One of the most important things to keep in mind when considering cash-out refinancing is to either keep or lower the number of years remaining on your home mortgage loan. In order to maximize savings and your home ownership timeline, it may be more wise not to pursue a cash-out refinance if you have to increase the number of years owed on your loan.
Anticipate Cash-Out Fees With Refinancing
Similar to cashing out a 401k or a health savings account before it reaches maturity, when you do a cash-out refinance on your existing mortgage, you should be prepared to pay fees.
Often, these fees come in the form of closing costs. According to Nerdwallet, “Closing costs are typically 3% to 6% of the mortgage — that’s $6,000 to $10,000 for a $200,000 loan. Make sure your potential savings are worth the cost.”
Be Creative With How You Pay Cash-Out Fees
While you do have to pay cash-out closing costs, be creative with how you pay your fees. Often, you are able to incorporate the refinancing fees into a loan, thereby eliminating any upfront closing costs.
Cash-Out Refinances Can Be Poured Back Into Real Estate
If you’ve just gotten money out of a home loan, it’s unlikely that your instinct will tell you to put that money right back into real estate. However, applying the cash from a cash-out refinancing can serve as a down payment for a great future investment, such as a retirement or a vacation homes.
Refinancing Provides Debt Consolidation Options
One of the most compelling reasons to opt for cash-out refinancing is that you have free reign over how you can spend the money. A smart way to spend your cash-out balance is to pay off any credit cards, particularly those with high-interest, to save you from doling out extra money on interest.
Cash-Out Refinancing Can Improve Your Credit Score
Another perk of paying off your credit card loans with a cash-out refinancing: it can actually help to improve you credit score. As you reduce your overall credit utilizations ratio, your score will likely also improve.
Be Wary of Cultivating Bad Credit Habits
However, if you are using your cash-out refinance to help lower your credit card debt, view this blank slate as a chance to spend smarter. Don’t let yourself fall back in to the habit of overspending and accruing additional credit card debt.
Stay Forewarned About Foreclosure
The benefits of a cash-out refinancing are attractive, but remember that your home is still the collateral for your new mortgage. Treat your cash-out refinancing serious, as missed payments could lead to losing your home.
