July 7th, 2014 9:20 AM by Jackie A. Graves, President
today’s recovering housing market, many homeowners have decided to wait a while
before upgrading to a new home. In some cases, consumers may opt to remain
in the same home until retirement, with a few simple changes making a home
enjoyable for many years to come. Those changes require funds, though, and
with so many homeowners still strapped for cash, those funds simply don’t
With interest rates still low,
cash-out refinancing has become a viable option for some
homeowners. Borrowers get a better interest rate while also securing extra
cash to spend however they want. Some consumers choose to put the money
toward a child’s college education or a nice vacation, while others put
that money to work on improving the very home they just refinanced.
Cash-Out Refinancing vs. Home
For homeowners, two types of
loans can help generate the money necessary to pay for home improvements.
The first is a cash-out refinance, which requires a redo of the original loan,
complete with a new interest rate and new terms. The homeowner’s mortgage
starts fresh, so if he’d paid seven years on a thirty-year loan, he would
find himself at year one on a new loan after completion of the paperwork.
The additional amount handed to the homeowner after closing will be part of the
new home loan.
Another option, a home equity
loan, leaves the homeowner’s original mortgage intact, with the new loan
existing alongside the original loan. Also called a home equity line of credit,
this funding option will be put into an account that the homeowner may
then draw from on an as-needed basis. Following a set draw period,
generally of ten years, the homeowner must begin repaying the principal and
interest and the funds are no longer available for withdrawal.
Since a cash-out refinance will
be part of a homeowner’s monthly mortgage payment for many years to come,
the commitment should be worth it. In some instances, that extra cash for a
remodeling project could result in an increase in the home’s value once
the homeowner decides to put it on the market. In that case, the extra
money will be quickly recouped, making the extra refinance well worth it.
Before making the decision,
homeowners should crunch the numbers to determine exactly how much that
extra ten or twenty thousand dollars will cost over the years. This includes
closing costs, which can add hundreds to thousands of dollars to the
overall expense of getting extra cash. In some cases, a home equity loan
may be a better option, depending on the length of time the homeowner plans to
payon the house.
However a homeowner decides to
procure the funds necessary for a home remodeling project, he should
balance the costs of interest and closing costs against the benefits that will
come from the work. Often an increase in the home’s value coupled with
another decade or more in the house before selling will make the decision
a good one financially in the long run.
By Courtney Watson – To view the
original article click here