The longer you live in your home in Philadelphia, the more repairs you’re likely to face. Sometimes repairs can get expensive which forces you to find money that you don’t have on hand. You can take out a loan to cover the costs, but that has its drawbacks when it comes to repayment. Deferring the maintenance only serves to lower the overall value of your property. There’s always a home equity line of credit (HELOC), but a HELOC may not be in line with your needs. However, refinancing with a cash-out refinance can help you fix your home without adding a lot of stress to your budget.
What is Refinancing With Cash-Out?
Refinancing your mortgage with a cash-out involves borrowing more money than what your home is worth, then taking the excess amount and using it towards the work on your home. This type of loan works best when you have equity in your home because the equity is used to determine how much you can cash out with the refinance loan.
Here’s an example: You bought your home for $150,000, but now the home is worth $180,000. You’ve owned the home long enough to have paid down the mortgage to $90,000. This means you have $90,000 in home equity. But there is a catch and that is you can’t take out the entire $90,000 in equity for the refinancing. You may, however, be able to refinance 80% of the equity which means you can take out $54,000 for your project.
There are no hard and fast rules when it comes to cash-out refinancing. All lenders have different standards and limits for their loans which is why talking to a Philadelphia mortgage company broker can help you find the right loan for your needs.
Should You Refinance Your Mortgage for Repairs?
There’s no one good answer because everyone’s needs are different, but having this conversation with a professional at a Philadelphia mortgage company can help you make a decision. A cash-out refi has many advantages when it comes to repayment and eliminates the need to use other lending instruments. You may dislike the idea of refinancing because it involves getting a new mortgage, but it has the advantage of breaking down the payments over a long period of time. It also means you don’t have to get an extra loan with a shorter period of repayment and higher interest rates.
What You Need to Consider When Refinancing a Mortgage
The interest rate on a mortgage is far lower than that of store cards and traditional credit cards. You could get a personal loan with a lower rate of interest, but these come with higher rates because they’re unsecured and rely on your credit rating instead of an asset for the guarantee of repayment. If your credit has some dings, you still have a good chance of qualifying and getting a reasonable interest rate.
Having one payment instead of many helps you control your cash outflows and minimize the pressure on your income. Taking on too many lines of credit that you have to repay only serves to cut into your income and make it harder to find cash when you need it.
It’s possible that your mortgage payments will increase as a result of refinancing with cash out. If you need a significant amount of cash for the repairs and it’s more than your original mortgage, your monthly payment is going to be higher than it was previously. Even though this initially seems like a drawback, the increased amount may still be less than what you would be paying with a separate loan or charge card.
Refinancing involves retiring your old mortgage and starting a new one. This requires more paperwork than getting a credit card or a personal loan and can take time. However, the benefits can greatly outweigh the drawbacks when it comes to getting the work done and keeping it affordable.