Cash Out Refinancing is a Viable Solution to Cash Concerns

When it comes to raising extra funds from your home, taking the cash out refinancing option can be well worth the effort. This is because it allows the equity in a home to be turned into valuable extra funds, as well as clearing the original home mortgage in one large payment.Understandably, there can be some hesitation when considering cash out refinancing home loans, principally because of the large sum that is borrowed, and the fact that it is greater than the balance left on the original loan. But there are several advantages that come with refinancing through cash out loans, not least the fact that extra funds are made available.What Cash Out Refinancing IsSimply put, the idea is to clear an existing loan, like a mortgage, using a new loan secured against the existing equity of the home. However, the sum sought is greater than the mortgage balance, so that there is money to spare to spend on whatever else that may be required.It is a sound idea, though it works best when the terms of the cash out refinancing home loan are better then with the original loan. This may mean that the term of the loan is shorter than the original, or the interest rate is lower or monthly payment is less. Otherwise, the financial status of the home owner is not improved at all, raising questions over the worth of refinancing through cash out loans in the first place.To ensure the exercise is truly worth the effort, there are a couple of points that should be kept in mind, and conditions that should be met.Equity must be GreaterA cash out refinancing home loan is only possible if there is enough equity remaining on the property to make the whole investment worthwhile. For example, if a home is worth USD250,000, and the remaining balance on the mortgage is USD100,000, then the existing equity is USD150,000. So, if the home owner needs further funds of say USD50,000, then refinancing through cash out loans is a workable solution to the problem of raising the extra money.A refinancing loan of USD150,000 is taken out against the remaining equity, with USD100,000 used to pay off the original mortgage and the remaining USD50,000 available to use as is necessary. And, since the original mortgage is paid off, the credit rating of the home owner remains high.Lower Interest RateThe chief issue with cash out refinancing is that the new interest rate should be lower than that of the original debt. This is because of the repayment sum and the fact that any significant increase will only add further financial pressure on the borrower.If we look again at the example above, a home owner is making a monthly repayment of USD2,000 on his USD250,000 mortgage, so there is little point in making repayments of USD2,500 on the cash out refinancing home loan just to pay off the remaining mortgage. Instead, refinancing through cash out loans should mean a lower interest rate that will see repayments on the USD150,000 loan around the same amount.This is particularly important when the sum already cleared from the principal amount is low, and the total of the cash out refinancing loan is higher than the original mortgage.