http://www.REIClub.com - Cash Out Refinancing Has It’s Pros and Cons. Here’s a Video on How A Cash Out Refinance Works for Real Estate Investors... <br /> <br /> <br />Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I’ve got a quick video on cash out refinancing, and using that money to invest in real estate <br /> <br /> <br />Cash-out Refinance vs. Home Equity Loan <br />Home Equity Loan - separate loan on top of your first mortgage (2nd mortgage), but keeps existing rates <br />Cash-out Refinance - replaces your first mortgage, at better rates (if possible), borrow more than you owe <br /> <br />A cash-out refinance allows a homeowner to access the equity of their home. For example, the home's value is $100,000 and the current loan balance is $50,000. The homeowner would like to have $20,000. The home could be refinanced for $70,000. The old mortgage would take $50,000 of the financed amount to pay it off, and the homeowner would receive the other $20,000. The payment on the new mortgage would be based on current rates and closing costs? <br /> <br />Pros <br />- low cost way to borrow money from property you own <br />- get better interest rates and terms <br />- Improves cash flow by securing lower monthly payments only during low rates <br />- Build equity faster - secure shorter loan term or could be longer depending on circumstance <br />- Improve your credit - consolidate debt, pay bills <br />- College tuition <br />- Down payment for an investment property - nets cashflow <br />- Use it on home improvements to increase property value <br />- Tax Benefits - mortgage interest is tax-deductible <br />- Not having to pay two loans like a Home Equity Loan <br /> <br />Cons <br />- Fees - hundreds to thousands in closing costs - depends on credit score and equity in property <br />- Sometimes you’re paying more on fees than money borrowed <br />- Longer time to pay off your mortgage - extending loan <br />- If property values drop, lose the equity you borrowed on - Harder on you when you sell <br />- AVOID NEGATIVE AMORTIZATION LOANS IF STILL AVAILABLE <br />- LESS LENDERS AVAILABLE TO MAKE THESE LOANS NOWADAYS <br />- HARDER TO QUALIFY NOW <br />- RISING INTEREST RATE ENVIRONMENT NOW <br /> <br />Disclaimer: Cash-out refinancing may not be suitable for everyone. It does depend on your current financial situation, and still best to consult with a banker, or mortgage professional to assure that this is an option for you. <br /> <br />With any mortgage refinance, it is important to understand the costs involved. Not just your monthly payments, but your terms and interests rates too because that’s where they get ya. <br /> <br />It’s important to avoid serial refinancing your mortgage if at all possible. Because if you’re not paying attention, you could land yourself in a negative equity position. That’s why a refinance should really only be reserved for times of great need, or in times when rates are simply too good to pass up. <br /> <br />Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel.
