A cash-out refinance is a refinance loan product that allows you to borrow against the available home equity on your residence and to receive a lump sum of cash upon closing. To qualify, the balance on your current first loan plus the cash out amount needs to equal no more than 85% of the appraised value of your home. This percentage is called your loan-to-value ratio or LTV, and it’s how lenders, not LendingTree, determine whether you have enough equity in your home to qualify for a refinance or a cash-out refinance. In addition, some states provide that it is unlawful for any person to broker or make a refinancing of a residential mortgage loan when the refinancing charges additional points and fees, within a 12-month period after the original loan agreement was signed, unless the refinancing results in a reasonable, tangible net benefit to the borrower, considering all of the circumstances surrounding the refinancing.
If you have had a 30-year mortgage for 5 years, and you refinance it for another 30-year mortgage, you will have extended your mortgage payments for another 5 years, resulting in payment of more overall interest expenses. However, depending on your particular financial situation and LTV refinancing in this scenario may increase the total number of monthly payments and/or the total amount paid when compared to your current situation. (i.e. 35 years of payments versus 30 years, however, if your interest rate is reduced by 2% you may realize interest savings over the life of the loan). However, be mindful of financing refinance closing costs and adding that expense to the loan balance. Consider the length of time you plan to stay in the home and ask your mortgage professional to assist you in determining your break-even point if you choose to do this type of refinance. It is important that you consider your individual circumstances, wants and needs when selecting this, or any mortgage product. The benefits of these alternatives may vary over time and will depend on individual circumstances. The longer you keep the property and your loan at the new rate and term, the more interest savings may be realized when compared to your current situation.