Using Refinance for Cash Back

Another way refinancing your mortgage might be advantageous to you is if you use it to get needed cash. You may be able to refinance for more than the balance on your old mortgage by tapping your home equity, or cashing out, in industry terminology. Because of falling interest rates, you may even be able to do this without increasing your monthly payments, depending on the amount you want to borrow. For example, you might have a $200,000 mortgage with a 30-year term and an 8.5 percent interest rate. In this case, your monthly payment would be $1538. You could keep the same monthly payment by refinancing at a 7.5 percent rate and taking out an additional $20,000.

There are plenty of reasons for wanting to take out extra cash when you refinance. One of these reasons is to pay off other loans with higher interest. You may have a balance on a high interest credit card you want to pay off. You also might still be making payments on an automobile at a higher rate of interest than you would be paying after refinancing. Maybe you have a home equity loan that you would like to pay off in full. Many times refinancing will give you a much lower rate than any of the aforementioned loans.

There are other things you might want to do with the money you get back, in addition to paying off other loans. Maybe you want to make long-needed repairs to your home, or add on to the existing structure. You might use some of the money to help send your kids to school, or almost any other purpose you can imagine.

While the cash you can get back from refinancing your mortgage is by no means free money, it may be smart money depending on how you use it.