Is Cashing Out Your Equity Too Costly? By David Nemer At Isnare.com Ezine Articles

One question people often have about refinancing their mortgage is if their mortgage payment will go up if they cash out their equity during the refinance. This question is different for every situation, but there are some common indicators as to whether cashing out your equity will raise the principle on your mortgage. The most important things to consider are how much your home is currently worth, how much equity you actually have invested in it and what your current interest rate is. If you have developed equity in your home, and your interest rate is currently higher than it would be after refinancing, then you can most likely arrange to cash out some of your equity and keep the same payments, or possibly lower them.

Also, if you have developed equity in your home which is greater than the amount you need to cash out and you find a refinance offer with a lower interest rate, you can probably cash out and keep the same payment. One aspect to remember though is that even though your monthly payments can usually be lowered, or kept the same, your time to payoff the loan will sometimes change. In other words, if you cash out your equity, the amount that was cashed out is added back onto the principle balance of your mortgage. So, instead of paying $500 per month for the next 60 months to pay off your house, now you have to pay $500 per month for the next 80 months to pay off your house – but you now have all that extra cash in the bank.

Market conditions, prevailing interest rates, the value of your home and the amount of equity you currently have will all play major roles in determining what the best option for your individual situation will be. One final thing to remember is that by increasing the amount of time it takes you to pay off your loan; you are also increasing the amount of money it will cost you to pay off your house. What I mean by that is, you will be paying more money overall if you refinance your loan and pay it off over the next 20 years instead of the next 10 years, even if your interest rate and monthly payments are slightly reduced.

In order to decide if a mortgage refinance and equity cash out is best for your situation, just make sure you weigh all your available options against your intended outcome. If you need money to pay for your child’s education, to consolidate other high interest debt, or to lower your monthly payment in order to have extra cash on hand then a cash out refinance could very well be the best option for you. If you do decided to cash out your equity, do your research and make sure you get the best deal you can by contacting several different loan providers for the best rates and options.

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