Refinancing for Extra Cash
With the cost of homes, it's often better to buy what you can afford and remodel later!
Once you are ready to remodel, particularly if you've lived in the house for a few years or have some equity built up, you may find that your best option is to refinance.
Most lenders are willing to discuss refinancing to get you some more money. What they are really doing is looking at the current value of your home versus the amount you have mortgaged, and they give you some cash back from the difference. This means that your mortgage gets bigger - and the cash difference comes to you.This can be a better deal than negotiating for a separate home improvements loan, but be careful! You always have to read the fine print:
- First, be sure that you will not be paying fees to do this. Your lender already has your business, right? You are offering them MORE business, right? As long as you are a good customer, they should be thanking you! You are going to make them money. At worst, fees should be minimal, as long as your credit rating and history are good.
- Second, be sure that the interest rate for your new mortgage is fair. Do some homework, and ensure that just because you are refinancing doesn't mean that your lender is taking an opportunity to get more out of you.
- Be sure when you are comparing interest rates that you also look at the rates of home improvement loans. You may actually be better off to have a separate home improvement loan. However, it depends on whether you can handle the amount of the home improvement loan, as well as interest rate. Home improvement loans are often over much shorter periods than a mortgage. Therefore, even if the interest rate is much lower, you may have a payment which is too high for you to handle. So, you'll need to know both interest rates AND payment amounts to compare home improvement loans with mortgage refinancing.
- Be sure that your lender knows that you are comparing options. If you want your lender to compete for your business, you should be knowledgeable. Don't be browbeat into something because they are 'doing you a favor'.
Once you have your cash in hand - happy renovating!
Mortgage Guide 101. Used with permission.