Cash Out Refinancing From Your Home Equity
A 100% cash out mortgage refinance enables you take out cash from the equity you have build up in your house. Because you are using the house as a collateral, the interest rates for a cash out can be lower than most other forms of loans you see in the market.
The main concern for mortgage lenders are whether the borrower has the ability to repay the loan. They may use many factors to assess whether you will be a good customer. Factors include things such as your assets, credit record, cash on hand, etc.
Your debt ratio will be calculated by factoring all your existing debts like personal loans, car loans, etc, against your income. So if you make a monthly salary of $5,000 and have a car loan paying $700 a month, you ratio will be $700/$5000 = 14%. What ratio is a favorable number depends on the internal assessment process of the lender. Some mortgage lenders may be more lenient than others and vice versa. If possible, minimize you debts to have a better ratio.
In the event that you lose your income, mortgage lenders want to feel safe that you can still pay off the mortgage loan. So having liquid assets like cash and stocks will make mortgage lenders feel safer knowing that you have such assets on hand.
You credit record is one of the most important factors that a mortgage lender will use to assess you as a borrower. They don’t know who you are and have to find some basis to assess whether you are a good paymaster who handles your cash well. So you credit record can determine how well you manage cash. Your most recent 1 year credit behavior reflects most closely to your current personal financial position.
Get at least 3 quotes from mortgage lenders before making a decision. This enables you to find out what is available in the market. It also helps you know if you are being taken for a ride by comparing the different cash out refinance mortgages.
Don’t just look at the best interest rates. Look at closing costs as well.