Most homeowners who refinance their mortgages now do “cash-out refis.” In these deals, you replace your existing mortgage with a larger one and pocket the difference. Because of today’s low interest rates, your monthly payments might not be any higher.
When comparing estimates for cash-out refi loans, read the fine print. Among the details to consider:
Some lenders add a half-point to the advertised refi rate for cash-outs.
Lenders may increase the mortgage rate by a quarter-point if you borrow more than 75 percent of your home’s value.
Often, you’ll be required to buy private mortgage insurance (PMI) on mortgages over 80 percent of your home’s value.
PMI is expensive and provides no benefit to you, the borrower. You’re probably better off taking a cash-out refi below the 80 percent mark, to avoid PMI. If you need more cash, use a home equity loan. In most cases, you can deduct interest on up to $100,000 worth of home equity debt not used to buy or build a home.
