SPEAKING WITH YOUR FINANCIAL ADVISER IN ADDITION TO YOUR MORTGAGE LENDER IS THE BEST WAY TO HELP YOU ANSWER YOUR REFINANCE QUESTIONS AND DECIDE IF YOU’RE IN A POSITION TO REFINANCE YOUR HOME LOAN.

There are several different ways to refinance your mortgage and each has its merits. To know which refinance method you should choose you’ll have to ask yourself some questions. You’ve got plans; now you just need to figure out how to get there. And it’s important to note that your plans will largely dictate the type of refinancing that’s best for you. Here, we’ve listed seven refinance questions to get your mind moving in the right direction—and to prepare you for future conversations about it with your lender.

1. how long do I plan on living in my current home?

How long you plan on living in your current home is a crucial factor when picking the optimal time to refinance. You’ll want to calculate when you’ll break even, because when you break even, the savings finally outweigh the costs. (Not sure when you’ll break even? Use our refinance calculator to find out.) For example, let’s say you plan on living in your home for at least five years and, based on your calculations, you expect to break even at 17 months. In that case, it’s probably worth it to stay in your home and reap the savings.

2. am I trying to lower my interest rate?

Currently, rates are on the rise, so if you bought your house in the last few years, it probably won’t save you any money to refinance now. However, if you purchased your home more than a decade ago and have not refinanced in the last 10 years, rates are probably low enough for a refinance to make sense. In the case of trying to lower your mortgage interest rate, you’ll want to check with your lender—they’ll be able to tell if you can get in at a lower rate.

3. do I want to pay off debt?

Trying to pay off other debt? Refinancing could free up some money you’d normally put toward your monthly mortgage payment. Have you heard of cash-out refinancing? With a cash-out refinance, you could borrow against your home equity and pay off some debt. Cash-out refinancing is also a popular option for homeowners looking to consolidate debt. If you have debt in multiple areas, a cash-out refinance would combine all of it into one convenient payment, giving you more disposable income.

4. should I tap into my home equity to make a big purchase?

Fourth on our list of refinance questions to ask yourself is about equity. Are you looking to make a big purchase in the near future? Maybe you have your eye on a new car or new furniture. Did you know you could fund that purchase with your home equity? Or maybe your kid is going off to college in the fall. You could refinance and put that cash from your home equity toward tuition, books, or school supplies. Got landscaping or home renovation plans? You could pay for those plans debt-free by refinancing your mortgage and tapping into your home equity. Sounds great—we know. But here’s the kicker: you can only borrow against your home equity up to 80%, meaning you have to retain at least 20% equity in your home after you refinance.

5. should I use my home equity to invest in a rental property?

We get it. You got bit by the investment bug. In this year’s competitive market, it might seem appealing to dive into all the excitement and purchase your own investment property. There’s good news! You could refinance and put your home equity toward buying a rental property. Especially when you’re trying to make money off this property, using your home equity to buy it in the first place only helps to offset the costs. Bet you didn’t know you could do that with a home loan refinance!

6. do I want to shorten my loan term so I can own my home debt-free, sooner?

Is 30 years too long for you? Just can’t wait that long? If you’re itching to get rid of your mortgage debt sooner, you could refinance for a shorter term. This is a popular option for older borrowers who are eager to own their home debt-free for some time and are planning on passing it down to children or grandchildren. But, if that’s not the life stage you’re in, you might just want to enjoy the benefits of a mortgage payment that’s only made up of taxes and insurance. It’s still a mortgage bill, but one that’s significantly cheaper, giving you more financial wiggle room!

7. am I in a position to take on costs associated with refinancing?

If, after you’ve asked yourself all of these refinance questions, everything sounds great so far, we have one more question for you: can you afford the costs associated with refinancing? It almost seems counterintuitive that refinancing to save money would cost you money, but remember the refinance process is similar to purchasing a home in that there are still various fees associated with the transaction. Things like appraisal fees, title fees, and closing costs still apply. No, you’re not having to come to the closing table with a big down payment, but you will have some up-front costs to pay. Good thing Cardinal Financial is on your side. If you’re a Cardinal Financial customer, ask us about fees we waive for our repeat customers!

In sum, this list of refinance questions is not exhaustive, but it should at least provide a starting point and get you thinking in the right direction. Check out our other refi blog posts below for additional insight!

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Homeowners: Close your eyes and picture your house. Got it? OK, now imagine it again, this time as a giant piggy bank with a roof, a chimney, a front door—the works. What if we told you that this isn’t just your imagination, it’s a metaphorical possibility: You could transform your home equity into cash with a cash-out refinance. Are you curious? Read on.

What is a cash-out refinance?

Refinancing is the process of replacing your original home loan with a new one, that may include a new interest rate and loan term. Refinancing can help you consolidate your debt, gain financial stability, oftentimes lower your interest rate, potentially pay off your mortgage sooner, and even get cash out. If those are benefits that catch your attention, stick with us here because it’s about to get interesting.

A cash-out refinance happens when the borrower refinances for more than the amount owed and pockets the difference. This allows you to tap into your home’s equity and turn it into hard cash. Now we’re talking.

What is equity?

If equity is one of those financial terms that you’ve heard before but don’t quite understand, allow us to define it for you: Home equity is the value of a house or property that represents the current market value of the house against its remaining mortgage payments (not including interest). This equity would increase over time if the market value of the property appreciates and as mortgage payments continue to be made.

Let’s break it down even more. Seven years ago, you bought your house for $100,000 and now it’s worth $200,000. You could refinance the house and take cash out for it now that it’s worth more than it was seven years ago.

Even though we’re talking about home equity, don’t confuse a cash-out refinance with a home equity loan or a home equity line of credit (HELOC). These seemingly overlapping terms are actually quite different. A home equity loan or line of credit is its own lien on the property (this would be in addition to your current mortgage if you have one already. Neither of these replaces or changes the terms of your current home mortgage). Conversely, a cash-out refinance is a loan that would replace the terms on your current mortgage. All of these options give you a chance to consider taking advantage of potentially better loan terms with the additional equity that has been accumulated.

What are the benefits?

In the midst of this giving season, debt consolidation sounds pretty attractive—and it’s a major benefit to cash-out refinancing that entices many homeowners. Take advantage of other benefits to this kind of refinance and make practical improvements to your home, like installing a new furnace, replacing a broken dishwasher, or fixing damaged parts of your roof.

If you’re looking to make your home a little more visually appealing, use your cash-out refi to remodel your master bathroom or get those butcher block countertops that are so popular right now. If you wait until the spring to do a cash-out refi, you could pay to have those unsightly shrubs removed from your front lawn or start building that dreamy pergola you’ve always wanted.

You can use the cash from your cash-out refinance any way you want, but many refinancers use this money for home improvement projects like landscaping or remodeling.

What’s the catch?

While cash-out refinancing may sound like music to your ears, we can’t call it a perfect solution. Be advised that lenders usually limit the amount of equity that you can take out of your home. Give us a call to find out if you should take advantage of a cash-out refinance.

The post What You Need to Know About Cash-Out Refinancing appeared first on Cardinal Financial.