When you get a mortgage loan, you will most likely have the right to pay it off early if you would like, and the most common way people pay off their loans early is through refinancing. Refinancing allows you to get a brand-new loan on your house, and you might have the opportunity to take cash out of the equity in your house if you do this. Here are three things you should know if this is something you are interested in.
Make sure you do not have a prepayment penalty
When refinancing your loan, the first thing you should realize is that you will incur a fee if your loan has a prepayment penalty on it. This is not a popular type of clause today, yet there are still loans that have this. If your loan has this type of clause, you will be required to pay a fee to your lender when you refinance, so you should double-check your loan to see if you have this.
You can cash out equity if you have enough equity
A lot of people want to refinance as a way of getting some cash out of the equity they have in their homes. To do this, you will most likely need to have a lot of equity in your house, because most lenders will only cash out up to 80% of a home's value.
This means that if you owe $90,000 on your house, you could get enough cash to bump your loan up to $160,000 if the home is currently worth $200,000. In other words, you could refinance for $160,000, which would include paying off the $90,000 you currently owe on your house and this would give you $70,000 cash to use for whatever purpose you have.
Check the interest rates before proceeding
If this is something you are interested in doing, you should find out what the interest rates currently are on loans. If the rate is higher than the rate you currently have, refinancing your entire loan and cashing out might not be a good idea. This would result in paying more for your loan than you would have. An alternative option would be to look into getting a home equity loan instead, which is considered a second mortgage.
If you have questions about refinancing, the best thing to do is talk to a loan officer, such as from Acceptance Capital Mortgage . A loan officer can help you determine what your options are and what the best route to take would be.